JGBs extend declines as bets for BOJ rate hike grow

By Junko Fujita

TOKYO, Sept 22 (Reuters) - Japanese government bonds (JGBs) extended declines on Monday, with the two- and five-year yields hitting 17-year highs, as investors braced for a possible interest rate hike following hawkish signals from the Bank of Japan.

The two-year JGB yield JP2YTN=JBTC rose 1.5 basis points (bps) to 0.93%, its highest level since June 2008. The five-year yield JP5YTN=JBTC jumped 3.5 bps to 1.235%, its highest since July 2008.

Yields move inversely to prices.

The BOJ kept its interest rate steady at its policy meeting that ended on Friday, but two board members voted against the decision, raising bets that the central bank could raise rates by the end of this year.

"Bets for a BOJ rate hike have strengthened after the policy meeting, which have pushed the yields higher," said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

The yield curve flattened on Friday as concerns over fiscal health eased after Sanae Takaichi, a candidate for the Liberal Democratic Party leadership election, toned down her appeal for government spending.

Swap rates indicated on Monday a 94.4% chance of the BOJ raising its policy rate by 25 bps to 0.75% in December. 0#JPYIRPR

The 10-year JGB yield JP10YTN=JBTC rose 2 bps to 1.66%, its highest since July 2008.

The 20-year JGB yield JP20YTN=JBTC rose 2 bps to 2.65%.

The 30-year yield JP30YTN=JBTC rose 2.5 bps to 3.175%, while 40-year JGBs JP40YTN=JBTC had not been traded, as of 0530 GMT.