JGB yields dip after Fed; effect muted as fiscal year-end caps buying

March 23, 2023 04:51 PM AEDT | By Reuters
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By Kevin Buckland

TOKYO, March 23 (Reuters) - Japanese government bond yields edged lower on Thursday tracking U.S. yields after the Federal Reserve hinted it was on the verge of pausing its rate tightening cycle in view of the current turmoil in the banking sector.

However, yields on the longest tenors bounced in afternoon trading as some investors opted to close positions ahead of Japan's fiscal year-end at the end of this month.

The 10-year JGB yield declined 2 basis points (bps) to 0.305% as of 0500 GMT, while benchmark 10-year futures added 0.22 bp to 148.50.

The equivalent U.S. Treasury yield sank as much as 18 bps to 3.43% overnight and remained depressed in Tokyo, trading around 3.45%.

The Fed raised rates by a widely expected 25 bps, but projected only one more quarter-point hike by year-end in a dovish shift.

"The decline in Treasury yields overnight is the main reason we saw JGB yields decline in the morning, but JGB yields had already gone down a lot" due to pressure from earlier fiscal year-end buying, said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

"A lot of investors decided to just lock in profits," she said.

The 40-year JGB yield was 0.5 bp lower at 1.525%, while the 30-year yield was 1 bp higher at 1.31%, reversing an earlier 2 bps decline. The 20-year yield was flat at 1.065% after starting the day down 4 bps. Yields on all three tenors reached at least six-month lows on Tuesday last week.

The two-year and five-year notes have yet to trade and last yielded -0.06% and 0.095%, respectively. (Reporting by Kevin Buckland; Editing by Sonia Cheema)


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