JGB yields decline after smooth 2-year note auction

By Kevin Buckland

TOKYO, April 24 (Reuters) - Japanese government bond yields fell on Thursday after a smooth auction of two-year notes soothed investor anxieties over the attractiveness of the securities following a sharp drop in yields this month.

The two-year JGB yield JP2YTN=JBTC was down one basis point (bp) at 0.67% as of 0505 GMT, reversing an earlier one-bp rise.

The yield had dropped as much as 31 bps to its lowest since mid-November at 0.54% between U.S. President Donald Trump's April 2 announcement of crippling "Liberation Day" tariffs and April 7, before grinding slowly higher as markets steadied.

The five-year JGB yield JP5YTN=JBTC lost one bp to 0.89%, flipping from an earlier 2.5 bps advance.

The 10-year yield JP10YTN=JBTC eased 0.5 bp to 1.32%, reversing a small rise.

The 20-year yield JP20YTN=JBTC was flat at 2.20% and the 30-year yield JP30YTN=JBTC slipped 1 bp to 2.67%.

Benchmark 10-year JGB futures 2JGBv1 ticked up 0.17 yen to 140.65 yen, erasing early declines. Yields fall when bond prices rise.

Expectations for Bank of Japan (BOJ) policy tightening have recovered somewhat since the shock of April 2, with traders now pricing in about a coin flip's chance of a quarter-point rate hike by year-end, according to LSEG calculations.

The BOJ also got some welcome respite after U.S. Treasury Secretary Scott Bessent said Washington wouldn't seek a stronger yen in trade talks with Tokyo, giving the central bank freer rein to be patient in assessing the fallout from Trump's trade battles.

At the same time, "the BOJ would want to avoid a situation where the dollar-yen rate rises significantly due to its communications, which could provoke the U.S. side," Mizuho analysts said.

"Therefore, for the time being - especially while Japan's inflation rate is still high - it would be difficult to take an overtly dovish stance."

The BOJ is widely expected to keep policy steady on May 1.