Japan bonds steady as US-Iran ceasefire optimism counters Trump's threats
TOKYO, April 7 (Reuters) - Japanese government bonds were largely steady on Tuesday, as investors wrestled with optimism over a potential Middle East ceasefire and unease over U.S. President Donald Trump's threat to escalate strikes on Iran if it fails to reopen the Strait of Hormuz.
Markets remained on edge as fragile diplomatic efforts to end the conflict showed signs of strain, while geopolitical risks tied to the critical oil shipping route continued to cloud sentiment.
The benchmark 10-year JGB yield JP10YTN=JBTC was flat at 2.425% after hitting a 27-year high on Monday, as higher oil prices, a weaker yen and concerns over fiscal expansion fuelled inflation worries.
The 20-year JGB yield JP20YTN=JBTC climbed 2 basis points (bps) to 3.350%. Yields move inversely to bond prices. The two-year yield JP2YTN=JBTC, the most sensitive to Bank of Japan policy rates, was unchanged at 1.395%, while the five-year yield JP5YTN=JBTC rose 0.5 bps to 1.830%.
The finance ministry is scheduled to auction about 600 billion yen of 30-year maturities later in the day.
"If oil prices were to fall sharply, JGB yields would likely decline significantly as well. However, given the recent linkage between domestic and overseas yields triggered by oil prices, as well as the current positioning of the JGB market, it is difficult to see JGB yields declining on their own," Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, said in a note.
Iran said on Monday it wanted a lasting end to the war with the U.S. and Israel, and pushed back against pressure to reopen the Strait of Hormuz while Trump warned the country could be "taken out" if it did not meet his Tuesday night deadline to reach a deal.
Other tenors were yet to be traded, as of 0055 GMT.
