Markets test Bank of Japan´s resolve at reverse JGB auctions
Japanese government bond markets were roiled overnight as a reverse auction for medium and longer-dated debt by the country´s central bank was apparently deemed insufficient by investors, given current circumstances.
Yields on the benchmark 10-year JGB issued by Tokyo hit an intra-session high of 0.153% - a 12-month high - after having closed at 0.109% in the previous trading session.
That came about after the Bank of Japan offered to buy back 450bn yen of JGBs in maturities ranging from five to 10 years, the same as at the last auction.
"The quantity was clearly seen as too passive though in the context of breaking through what most think is the perceived upper limit of the BoJ’s level of comfort around the 0% 10y yield target," said Jim Reid at Deutsche Bank.
However, a follow-up unscheduled operation a couple of hours later, after the market had tested the BoJ's resolve, saw yields fall back to 0.10% [as of 0920 GMT], he explained.
"While that latter move has had a more obvious effect, it’s worth highlighting that the yield still remains above the BoJ’s perceived upper band, notwithstanding the fact that markets have been left a bit dazed and confused by all this."
In parallel, US dollar/yen was up by 0.32% at 113.09.
Acting as a backdrop, China announced it was raising rates on 7, 14, and 28-day reverse repos by 10 basis points to 2.35%, 2.50% and 2.65% respectively.
Friday was the first trading day following the Chinese Lunar New Year holidays.