Global Market: Japanese government bond yields fall as safe-haven demand returns

The gains followed a sharp fall in JGB yields and a rally in the yen on Tuesday.

The yield on the benchmark 20-year JGB fell 1 basis point to 3.690%, heading for a third consecutive session of declines. Bond yields move inversely to prices.

The gains followed a sharp fall in JGB yields and a rally in the yen on Tuesday, after an auction of 20-year government bonds attracted record-high demand, signalling renewed investor appetite for Japanese debt.

The recovery in Japanese bonds came amid similar moves in overseas debt markets. Longer-dated US Treasury yields declined on Tuesday after weak housing data, while German government bond yields fell as investors sought safer assets.

The moves followed a broad global bond selloff over the past month that pushed long-term yields to multi-decade highs, driven by inflation concerns and expectations of heavy government borrowing.

Higher yields have begun to draw investors back into debt markets, with the trend also pointing to increased repatriation of Japanese capital, according to Skye Masters, head of markets research at National Australia Bank.

Meanwhile, a Reuters poll published on Wednesday found that a majority of economists expect the Bank of Japan (BOJ) to raise its policy rate to 1.50% in December from the current 1.25%. Economists largely expect the central bank to leave rates unchanged at its meeting ending October 30.

Other JGB maturities had yet to trade early on Wednesday, leaving the 20-year bond as an early indicator of sentiment in the Japanese government debt market.