JGB yields fall from multi-decade highs after strong 20-year auction

By Rocky Swift

TOKYO, April 14 (Reuters) - Yields on Japanese government bonds fell from multi-decade highs after a long-term debt auction drew the strongest demand in nearly seven years.

The benchmark 10-year JGB yield JP10YTN=JBTC fell 3 basis points to 2.435%, easing from a 29-year high of 2.49% hit on Monday.

The five-year yield JP5YTN=JBTC fell 3 bps to 1.840% from a record 1.9% touched in the previous session. Yields move inversely to bond prices.

Japan's Ministry of Finance sold about 700 billion yen ($4.40 billion) in 20-year JGBs. The sale's bid-to-cover ratio, a measure of demand, rose to 4.82, the highest since July 2019.

JGBs accelerated gains after the sale, with the 20-year yield JP20YTN=JBTC sliding 8 bps to 3.310%. The 30-year yield JP30YTN=JBTC fell 9 bps to 3.61%.

An overnight drop in crude oil prices and a rebound in U.S. Treasuries may offer some support to the fragile JGB market, said Keisuke Tsuruta, a senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Growing uncertainty surrounding the situation in the Middle East remains a negative factor," Tsuruta said in a report.

Government bond yields have been rising globally as elevated oil prices in the wake of the Iran war intensified inflation risks.

In Japan, expectations are growing that the government may ramp up stimulus to support the economy, adding to strains on its already heavy debt load.

Inflation erodes the real value of fixed bond payments and increases pressure on the Bank of Japan to tighten monetary policy. Still, expectations for a BOJ rate hike in April have declined significantly, Tsuruta said.

The two-year JGB yield JP2YTN=JBTC, which is most sensitive to monetary policy rates, decreased 2 bps to 1.37%.

($1 = 159.2200 yen)