Global Market: Japan five-year bond yield steady after strong demand at auction

Japan 5-year bond yield stays steady after strong auction.

The five-year Japanese government bond (JGB) yield was unchanged at 2.34%, retreating from an earlier session high of 2.35%. It was last up 0.5 basis point at 2.345%.

The Ministry of Finance's auction of five-year bonds received bids worth 3.56 times the amount sold, exceeding the average bid-to-cover ratio of 3.36 times over the past year, indicating solid demand.

Strong demand was partly supported by a decline in French government bond yields, Takashi Fujiwara, lead fund manager at Resona Asset Management, said, according to Reuters.

France's 10-year government bond yield fell to 4.8034% on Tuesday, down from 4.8958% at Monday's close. French bonds have come under heavy selling pressure as the government struggles to push through an unpopular budget aimed at reducing the country's deficit ahead of next year's presidential election.

Expectations that the Bank of Japan is approaching the end of its monetary tightening cycle have also improved demand for five-year JGBs, Fujiwara said, according to Reuters.

Market participants increasingly expect the BOJ's terminal interest rate to be between 1.75% and 2%, with that level potentially reached by June next year, Fujiwara said.

The latest quarterly Tankan business survey has also reinforced expectations that upside risks to inflation expectations remain limited, helping strengthen the view that the central bank's future rate increases may be constrained, he added.

Elsewhere in the Japanese government bond market, the benchmark 10-year JGB yield fell 0.5 basis point to 2.995% following the auction.

Investors are assessing the outlook for Japanese monetary policy alongside developments in global bond markets, with changing expectations for interest rates and fiscal risks continuing to influence demand for government debt.