Japan's 5-year bond yield slips to two-week low ahead of auction

By Junko Fujita

TOKYO, Feb 17 (Reuters) - Japan's 5-year government bond yield dropped to a two-week low during early trade on Tuesday, ahead of an auction of bonds with the same maturity scheduled for later in the day.

The five-year yield JP5YTN=JBTC fell 2 basis points (bps) bps to 1.65%, its lowest since February 2.

Investors are awaiting the bond auction, with forecasts for the outcome remaining mixed.

"The auction outcome is expected to be weak, as investors are cautious for the Bank of Japan's another interest rate hike as early as March," said Yuki Kimura, bond strategist at Okasan Securities.

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

The five-year bond yield rose to a record high of 1.735% on the day after Prime Minister Sanae Takaichi's landslide win at the nation's lower house election, as the bets for the BOJ's rate hike expanded.

The yields were on the decline as the yen strengthened against the dollar.

Bonds with other maturities have not yet traded, as of 0052 GMT.