Halister News

(Bloomberg) -- Yields on 10-year Japanese government bonds are tracking their U.S. counterparts lower, but further declines will likely be limited with shorter yields staying relatively elevated, says Souichi Takeyama, a rates strategist at SMBC Nikko Securities.

• Supply-demand is tightening with two BOJ bond buying operations scheduled later in the week 
• Easing Treasury yields providing favorable external environment; yet 10-year JGB yield isn’t aggressively testing its downside, falling only to lowest since late June
• JGB market isn’t necessarily becoming bullish even as yen has strengthened a bit while Treasury yield has also only fallen to lowest levels since June
• Five-year yield is about 2bps higher from June levels of around -0.09%
  • Drop in two-year yield has moderated with fewer foreign demand now
• Limited decline in shorter-end of yields may be preventing 10-year yield from falling
• There is some sense of expensiveness in 20-year sector as 10-20 spread has narrowed, making the zone increasingly top- heavy
• “It’s a bit difficult to chase prices higher generally”
• “Restrained rise in yields allows BOJ to refrain from aggressive buying operations”
• JGB futures rise as far as 150.50
  • 20-year yield briefly touches 0.555%, lowest since June 22
  • 10-year yield inches down 0.5bp to 0.05%, lowest since June 28

To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Patricia Lui