An auction of five-year government notes in Japan met solid demand in the nation’s first sale since central bank Governor Kazuo Ueda jolted markets with comments that suggested negative interest rates may be on the way out.
The Ministry of Finance sold ¥2.5 trillion ($17 billion) of debt maturing in June 2028, and will offer ¥1.2 trillion of new 20-year bonds Thursday. The five-year auction drew a higher-than-expected cut-off price and its bid-to-cover ratio rebounded from the prior sale of similar securities on Aug. 15.
Tuesday’s respectable result broke a string of weak sales seen over the past month, during which a 20-year auction had a so-called tail that was the widest since 1987. The measure of demand is the difference between average and cut-off prices.
Higher yields likely attracted investors, said Keisuke Tsuruta, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. Yields on five-year debt climbed to the highest since January before the auction results were announced.
On Monday, 10-year yields rose above 0.7% for the first time in more than nine years after Ueda told the Yomiuri that it’s possible the BOJ will have enough information by year-end to judge if wages will continue to rise.
If the central bank becomes confident prices and wages will keep going up sustainably, ending negative interest rates is among the options available, Ueda said in the interview published Saturday. Still, he said the BOJ is some distance away from achieving its price stability target and would continue its patient monetary easing.
(Adds strategist comments.)
Author: Yumi Teso, Masaki Kondo and Hidenori Yamanaka
