(Bloomberg) -- As Japan’s 10-year yields climb to zero for the first time since March, investors are likely wondering what can stop the more than two-month sell-off in Japanese bond futures.
A combination of domestic buying interest as the benchmark edges out of negative territory and an end to foreign selling will likely put a halt to their slide, according to market participants.
“Japanese investors are likely to show appetite for the 10-year yield at zero and that may provide a catalyst to stopping the sell-off in futures,” said Takenobu Nakashima, senior rates strategist at Nomura Securities Co. in Tokyo.
The 10-year yield has risen about 8 basis points so far this month, amid a global bond retreat and plans for a 26 trillion yen ($239 billion) stimulus package from the government. JGB futures have fallen to a one-year low and are down over 2% from a late September peak, as foreign investors cut their positions.
“Futures selling has probably been related to foreign investors reducing their holdings, and selling by speculators such as CTAs, given the rapid pace of their decline,” said Shuichi Ohsaki, chief rates strategist at Bank of America Merrill Lynch in Tokyo.
Nomura’s Nakashima suggests pressure from the trend-following funds should ease off once bond yields settle.
“As long as JGBs are in a downtrend, futures selling may continue,” he said. “So cash bonds will hold key to stopping futures selling.”
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