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Japan’s 2-year govt bond yield jumps to 7-1/2-year high

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TOKYO — The yield on two-year Japanese government bonds (JGBs) on Tuesday jumped to its highest in more than seven-and-a-half years, as an auction for the notes with the same maturity received relatively weak demand.

The two-year JGB yield rose to as high as 0.040%, its highest since March 2015, before falling to 0.030%.

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“The auction took place when the direction of the Bank of Japan’s (BOJ) monetary policy remains unclear,” said Ataru Okumura, a strategist at SMBC Nikko Securities.

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The two-year bond yield turned positive for the first time in seven years last week when BOJ shocked markets with a surprise widening of the allowance band around its 10-year JGB target, a move that aimed at easing some of the cost of prolonged stimulus.

It is not clear whether the BOJ would continue its policy tweak, or keep its ultra-rate policy unchanged, Okumura said.

The auction outcome was relatively weak, said Keisuke Tsuruta, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The auction received bids worth 3.78 times the amount available, lower than a bid-cover ratio of 4.03 at the previous auction.

In another sign of weak demand, the auction’s tail, or the gap between lowest and average price, widened to 0.24 from 0.1 at the previous auction.

The 10-year JGB yield rose 1.5 basis points to 0.455% amid caution for an action at the beginning of next month.

The 20-year JGB yield rose 2 basis point to 1.240%.

The five-year yield rose 0.5 basis point to 0.240%.

The 30-year JGB yield rose 4 basis points to 1.535%.

The 40-year JGB yield rose 3 basis points to 1.755%. (Reporting by Junko Fujita, additional reporting by the Tokyo markets team; editing by Uttaresh.V)

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