JGB yields rise as oil price surge spurs bets on more government spending

By Junko Fujita

TOKYO, March 12 (Reuters) - Japanese government bond (JGB) yields rose on Thursday, as a renewed climb in oil prices stoked bets that the government may expand spending to cope with inflation.

Oil prices jumped on Thursday as Iran stepped up attacks on oil and transport facilities across the Middle East, raising fears of a prolonged conflict and oil-flow disruptions through the Strait of Hormuz.

The benchmark 10-year JGB yield JP10YTN=JBTC rose 3 basis points (bps) to 2.185%.

The 20-year JGB yield JP20YTN=JBTC climbed 3.5 bps to 3.065% and the 30-year bond yield JP30YTN=JBTC rose 4 bps to 3.47%.

"With the oil prices rising, the market has started pricing in the possibility that the government may take measures that involve more spending to cope with inflation," said Yuuki Fukumoto, senior researcher at NRI Research.

Prime Minister Sanae Takaichi's aggressive fiscal policy stance has already shaken the JGB market, sending yields of super-long-dated bonds to record highs in January when she announced the dissolution of parliament and called a snap election.

Japan, which depends on the Middle East for around 95% of its oil supplies, said on Wednesday it would release about 80 million barrels of oil from its strategic reserves, equivalent to 45 days of supply, to mitigate global disruptions.

"With so much uncertainty in the Strait of Hormuz, it is hard for investors to buy bonds with longer durations," Fukumoto said.

The selloff in shorter-dated bonds was limited, steepening the yield curve.

The two-year yield JP2YTN=JBTC rose 1 bp to 1.255% and the five-year yield JP5YTN=JBTC rose 2 bps to 1.630%.