Japan’s 10-Year Yields Pulled Higher by U.S. Treasuries: Rates

(Bloomberg) -- Japanese bond yields rose along with those in the Asia-Pacific region in response to Treasury yields moving higher Wednesday, after the U.S. securities bounced off support at the 50-day moving average earlier this week.

Japan’s 10-year yields climbed to the highest this year, approaching their December peak of 0.1 percent, following the central bank’s decision to skip short-term bond purchases on Wednesday. The nation’s 40-year yield rose to 1 percent for the first time in 11 months.

The BOJ held back from buying of one-to-five year government bonds Wednesday, raising the prospect it may cut the frequency of purchases for that sector to five from six. “The BOJ is likely to conduct buying of the one-to-five-year sector tomorrow, as yesterday’s move was probably aimed at stemming the sharp decline in that zone due to the extremely tight supply and demand balance,” said Naoya Oshikubo, a rates strategist at Barclays Securities in Tokyo.

The focus for Friday’s operation will be on whether the BOJ will buy maturities longer than 10 years, as it has already conducted five such operations this month, as planned. As there is some speculation it may skip that sector on Friday, yields may climb before the operation is due as the market seeks to test the central bank’s resolve.

New Zealand 10-year yields rose to the highest level this year after an inflation report beat economists’ forecasts. Consumer prices increased 1.3 percent in the fourth quarter from a year ago, surpassing the 1.2 percent estimate in a Bloomberg survey, adding to expectations that the central bank won’t need to cut interest rates further.

The spread between New Zealand and Australian 10-year bond yields expanded beyond 0.6 percent to the widest since February, reflecting the divergence in inflation between the two South Pacific countries.

“The pick-up looks to be more broad-based than anticipated," said Peter Dragicevich, foreign-exchange strategist at Nomura Singapore Ltd. “This is in contrast to the Australian CPI data released yesterday. The data would be a comfort for the RBNZ, and should help solidify market expectations that the next move is up."

NOTE: Australian markets are closed Thursday for a public holiday.

Asia Rates at a Glance

Table shows 10-year government bond yields and yield changes on the day. Z-scores measure deviation from average in past three months.

--With assistance from Chikako Mogi

To contact the reporter on this story: David Finnerty in Singapore at dfinnerty4@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds