Japanese Bond Yields Fall as Safe-Haven Demand Returns

Japan’s benchmark 20-year government bond yield dropped 1 basis point to 3.690% early on Wednesday, October 21, putting it on course for a third straight session of declines. Economic Times Markets, carrying Reuters reporting, attributed the recovery in bond prices to renewed demand for safer assets and yields attractive enough to draw buyers back after a global debt-market selloff.

Tuesday’s auction of 20-year Japanese government bonds drew demand described as a record, helping drive a sharp decline in yields and a rise in the yen. Bond prices rise when yields fall. Other Japanese government bond maturities had not yet traded early on Wednesday, so the 20-year yield offered only an initial indication of market sentiment.

Overseas bonds recover after a month of selling

The Japanese rebound coincided with gains in overseas government debt. Longer-dated US Treasury yields fell on Tuesday following weak housing data, while German government bond yields declined as investors moved towards safer assets.

That recovery followed roughly a month of widespread bond selling, during which inflation worries and expectations of substantial government borrowing pushed long-term yields to multi-decade highs. Skye Masters, head of markets research at National Australia Bank, said higher yields were attracting investors back to debt markets and that the trend also suggested more Japanese capital was returning home.

Economists see a December rate increase

A Reuters poll published on Wednesday found that most economists expected the Bank of Japan to raise its policy rate from 1.25% to 1.50% in December. They largely anticipated no change at the central bank’s meeting ending October 30.

Those expectations are forecasts rather than announced policy decisions. The bond figures likewise represent an early-session snapshot, not closing yields.