Benchmark Jgb Yields Rise to 27-year High on Inflation Concern

By Satoshi Sugiyama and Rocky Swift

TOKYO, March 30 (Reuters) - Benchmark Japanese government bonds (JGBs) slumped on Monday, sending yields to a near three-decade high, as the worsening Middle East conflict stoked inflation concerns and expectations for an early central bank interest rate hike.

The benchmark 10-year JGB yield JP10YTN=JBTC rose 2 basis points (bps) to 2.390%, a level not seen since February 1999. The five-year yield JP5YTN=JBTC rose 0.5 bps to 1.820%. Yields move inversely to bond prices.

Japanese shares plunged and the yen traded above the key 160-per-dollar level as the month-long war in Iran weighed on investor sentiment. In a summary of opinions from the Bank of Japan's most recent policy meeting, one member said surging oil prices and a weak yen could push up inflation sharply.

"Lingering uncertainty over the chances of an early ceasefire is likely to weigh on the government bond market, as concerns remain that higher crude oil prices could fuel upside inflation risks," Kazuya Fujiwara, bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said in a note.

Japan remains highly exposed to spikes in crude oil prices due to its heavy reliance on imported energy. Higher oil costs tend to feed into domestic inflation, eroding the real value of fixed-income securities and adding pressure on the central bank to tighten monetary policy.