By Brigid Riley
TOKYO- Japanese government bond (JGB) yields fell on Tuesday, tracking their US peers lower as bets grew that the Federal Reserve would deliver a half-percentage-point rate cut this week.
Markets are now pricing in a 69 percent chance of a 50 basis-point rate cut at the end of the Fed’s Sept. 17-18 meeting, up from 30 percent a week ago, CME Group data shows.
The US Treasury two-year yield fell on Monday to its lowest in two years, while the 10-year’s yield eased for a second straight session.
The 10-year JGB yield was down 1.5 bps at 0.825 percent as of 0450 GMT after earlier slipping to a fresh one-month low of 0.82 percent , while 10-year JGB futures rose 0.16 points to 144.87 yen.
Japanese markets were closed on Monday for a public holiday.
With the US Treasury market still fluctuating between bets for a 50 bp and 25 bp cut this week, there’s a good chance that a super-sized reduction will add downward pressure on JGB yields, said Ryutaro Kimura, a fixed income strategist at AXA Investment Managers.
However, given the “risk of a hawkish message from the Bank of Japan” at its meeting this week and the possibility of more rate hikes in the near future, the drop in JGB yields is “likely to be limited,” he said.
Yields are expected to rise with interest rates, making current levels less attractive.
The BOJ will begin its two-day monetary policy meeting on Thursday, where it is expected to keep rates steady while signaling additional increases are coming.
Among the economists polled by Reuters, 54 percent forecast another hike by the year-end.
The 20-year JGB yield briefly touched its lowest since Aug. 5 at 1.615 percent . It was last down 1.5 bps at 1.62 percent .
The 30-year JGB yield fell 1.5 bps to 1.995 percent .
The two-year JGB yield and five-year yield slid 1 bp each to 0.375 percent and 0.485 percent, respectively. -Reuters
