Japan yields drift as traders ponder next government, interest rate path
By Kevin Buckland
TOKYO, Oct 9 (Reuters) - Japanese government bond yields drifted with little direction on Thursday after an unremarkable auction of five-year notes left traders assessing the potential shape of the next government and its implications on the monetary policy path.
The five-year JGB yield JP5YTN=JBTC was down 0.5 basis point (bp) at 1.225% as of 0530 GMT, paring an earlier 1.5 bps decline after the announcement of the auction results.
A gauge of demand called the bid-to-cover ratio, which compares the number of bids to the amount of bonds on offer, was broadly unchanged from last month's sale. However, another gauge called the tail - the difference between the lowest-accepted bid and the average price - widened slightly.
"The auction itself produced a result that can best be described as moderately soft, yet far from disorderly," Shoki Omori, chief desk strategist at Mizuho Securities, said in a note.
The 10-year JGB yield JP10YTN=JBTC also pared an earlier decline and was down 0.5 bp at 1.69%.
The 20-year yield JP20YTN=JBTC rose 1.5 bps to 2.715%.
The 30-year bond JP30YTN=JBTC had yet to trade after the result, with the yield up 0.5 bp at 3.16%.
The two-year yield JP2YTN=JBTC was flat at 0.925%.
Longer-dated yields spiked at the start of the week, with the 30-year yield hitting an all-time high of 3.235%, after Sanae Takaichi - seen as a fiscal and monetary dove - was elected leader of the ruling Liberal Democratic Party, putting her in position to be the next prime minister.
Shorter-dated yields fell on speculation that she could delay the restart of rate hikes.
Those initial moves have mitigated as the week progresses, with Takaichi's path to the premiership complicated by frictions with coalition partner Komeito over her hardline conservative positions.
Betting website Polymarket currently has 93% odds for Takaichi to become premier, while Yuichiro Tamaki, leader of the influential Democratic Party for the People, commands 6% odds.
Market-implied bets for a quarter-point rate hike at the end of this month stand at around 27%, per LSEG data.
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