Jgb Yields Rise Over Uncertainties About Us-iran Ceasefire

Japanese government bond yields rebounded on Thursday amid growing uncertainty over a two-week ceasefire between the United States and Iran.

The 10-year JGB yield JP10YTN=JBTC rose 3.5 basis points (bps) to 2.4%.

"Optimism over the outlook of the Middle East war faded, with doubts about the reopening of the Strait of Hormuz," said Naoya Hasegawa, chief bond strategist at Okasan Securities.

The 20-year JGB yield JP20YTN=JBTC rose 5 bps to 3.315%, and the 30-year yield JP30YTN=JBTC climbed 5.5 bps to 3.65%. Yields move inversely to bond prices.

Investor sentiment was hurt after Israel launched its heaviest strikes yet on Lebanon on Wednesday, killing hundreds of people and prompting threats of retaliation from Iran. Tehran also signalled that it would be "unreasonable" to continue negotiations on a permanent peace deal with the United States.

The yields fell sharply in the previous session after U.S. President Donald Trump agreed to a two-week ceasefire with Iran.

"The declines in yields in the previous session were limited given the heavy selloffs earlier this week, in part because the market expects that the Bank of Japan would raise its interest rates regardless of the fate of the Middle East war," said Hasegawa.

The market's view on the BOJ's early rate hike is divided: surging oil prices from the Middle East and the weak yen have pressured inflation, but higher interest rates could hurt the economy.

On Thursday, investors awaited the outcome of a five-year bond auction, which will follow a disappointing 10-year bond sale last week.

The five-year yield JP5YTN=JBTC rose 1.5 bps to 1.800% on Thursday, which is an attractive level for investors who want to add the bonds to their portfolio at the start of the new fiscal year, Hasewaga said.

The two-year yield JP2YTN=JBTC rose 1 bp to 1.385%.