Japanese yields dip after strong bond sale

Demand for two-year Japanese government bonds reached a bid-to-cover ratio of 4.03, up from 3.89 at the previous sale last month. This strong uptake provided immediate support to the domestic market on Thursday.

The benchmark two-year yield eased by half a basis point to 1.895%. This move reversed an earlier small increase that followed the auction results. Yields fall when bond prices rise. The ten-year yield rose 0.5 basis points to 2.83%, while the five-year yield held steady at 2.265%. The thirty-year yield edged up half a basis point to 3.88%. The twenty-year note had not traded as of 0514 GMT.

External factors also influenced trading activity. US Treasuries gained value after the Federal Reserve left interest rates unchanged. The central bank offered few signals regarding the likelihood of a rate hike at its next meeting in December. Yuhi Kawano, a market analyst at Mizuho Securities, stated that the market perceived this move as less hawkish than expected. He noted that this environment makes the need for the Bank of Japan to raise rates at a high pace appear low, which supports the yen bond market.

Investors are watching the Bank of Japan closely as it prepares for its monetary policy decision on Friday. A Reuters poll of economists indicates the bank is likely to leave rates unchanged on that date. The same poll suggests a quarter-point rate hike is probable in December.