JGB yields sink on US recession fears, BOJ rate path uncertainty

Reuters

JGB yields sink on US recession fears, BOJ rate path uncertainty

Aug 5, 2024 at 8:36 am GMT

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Updates with current levels

By Brigid Riley

TOKYO, Aug 5 (Reuters) -Japanese government bond (JGB) yields sank on Monday to their lowest since April, following a decline in U.S. yields amid concerns of a recession, while investors questioned if the Bank of Japan (BOJ) would raise interest rates again this year.

U.S. Treasury yields stumbled as traders wagered that the Federal Reserve will likely need to be aggressive in cutting interest rates after weak jobs data stoked worries that the U.S. economy could be heading for a recession.

Benchmark 10-year JGB futures 2JGBv1 rose over 2 yen, briefly triggering a circuit breaker, and were last up 2.26 yen at 146.06 yen.

The 10-year JGB yield JP10YTN=JBTC slid 20.5 basis points (bps) to 0.75%, its lowest since April 2.

Analysts also cited growing uncertainty about whether the BOJ will raise rates further this year as a factor in JGB yields' decline.

Naka Matsuzawa, chief macro strategist at Nomura, said the bank could be more hesitant to hike given the current market stress.

"I think the BOJ can go back to the rate-hike path, but it's going to be slower than previously expected."

Japanese equities on Monday saw their biggest single-day rout since the 1987 Black Monday selloff. .T

The yen, meanwhile, continued to appreciate, hitting a seven-month peak on Monday, driven partly by an unwinding of yen-funded carry trades. FRX/

Matsuzawa said he expects JGB yields to stay around current levels until equities and the yen settle down.

Minutes from the BOJ's June meeting underscored how the yen's declines were among key factors discussed then, and led to its decision in July to raise rates.

The two-year JGB yield JP2YTN=JBTC, which corresponds more closely with monetary policy expectations, sank 15 bps to 0.26%. It earlier touched its lowest since April 20 at 0.255%.

The five-year yield JP5YTN=JBTC tumbled 21.5 bps to 0.36%, and the 20-year JGB yield JP20YTN=JBTC fell 19 bps to 1.53%, both at four-month lows.

The 30-year yield JP30YTN=JBTC declined 16.5 bps to 1.91%, a level not seen since April 22.

Reporting by Brigid Riley; Editing by Jacqueline Wong, Varun H K and Muralikumar Anantharaman

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