JGB yields slip to multi-week lows in holiday-thinned trade

By Junko Fujita

TOKYO, Feb 17 (Reuters) - Japanese government bond (JGB) yields fell to multi-week lows on Tuesday in holiday-thinned trading, tracking sharp declines in U.S. Treasury yields last week.

The benchmark 10-year JGB yield JP10YTN=JBTC fell 8.5 basis points (bps) to 2.125%, its lowest since January 9. The 20-year JGB yield JP20YTN=JBTC slid 11 bps to 2.970%, the lowest since the end of December.

Japan will likely see annual bond issuance surge 28% three years from now on rising debt-financing costs, Reuters reported, casting doubt on premier Sanae Takaichi's argument that the country can deliver tax cuts without boosting debt.

"The news would have prompted investors to sell bonds and push the yields higher, but that was offset by the sharp declines in the U.S. Treasury yields," said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

Bond yields move inversely to prices.

The U.S. two-year bond yield fell to its lowest in four months last Friday, as cooler-than-expected inflation data for January underpinned hopes for rate cuts by the Federal Reserve.

U.S. markets were shut on Monday for Presidents' Day holiday.

Holidays in Asia have curbed trading volumes, leading JGB yields to fall more sharply on Tuesday and negatively affecting the outcome of a five-year JGB auction, said Tomoaki Shishido, a senior rates strategist at Nomura Securities.

The markets in mainland China, Hong Kong, Singapore, Taiwan, and South Korea were closed on Tuesday for Lunar New Year holidays.

The 5-year JGB yield JP5YTN=JBTC fell 2.5 bps to 1.645% before the auction at 0130 GMT and extended the decline after the outcome was announced, last down 5.5 bps to 1.615%, its lowest since January 15.

With forward one‑year overnight index swaps (OIS) two years ahead hovering between 1.7% and 1.75%, and the BOJ having raised its policy rate to 1%, the five-year bond yield will trade around the 1.7% level going forward, said Yuki Kimura, bond strategist at Okasan Securities

The 30-year yield JP30YTN=JBTC slipped 9 bps to 3.39%, its lowest since the end of December.