(Bloomberg) — Japan’s 40-year government bond yield reached an all-time high amid a global debt selloff and expectations that the Bank of Japan will hike interest rates in coming months.
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The yield rose as much as 3 basis points to 2.755%, the highest since 2007 when the bonds were sold for the first time. Japan’s 20-year yield also rose to its highest since May 2011 this morning after the nation’s markets reopened following a public holiday on Monday.
Global yields have been rising amid worries about lingering inflation and widening fiscal deficits. The US economy has seen stronger-than-expected data that’s prompted traders to rein in expectations of rate cuts by the Federal Reserve, while the market is also trying to assess the impact of President-elect Donald Trump’s victory.
“Long-end JGB yields are rising with speed, hitting their highest in years,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo. “With US Treasury long-end yields going up, there’s room for Japan’s bond yields to rise further.”
Investors are also preparing for a potential rate hike by the BOJ in the coming months. Governor Kazuo Ueda said that he’s going to raise the benchmark rate if the economy continues to improve this year in a speech last week, avoiding any specific hints on the timing of the next hike.
Overnight index swaps are pricing in a 59% chance of a rate hike at next week’s meeting, and 84% by March. Deputy Governor Ryozo Himino said in a speech in Kanagawa on Tuesday that the central bank’s members will discuss whether to raise rates or not this month, but recognizes there are various risks at home and abroad.
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