Japan bonds retreat as AI share rebound saps haven demand

Microsoft

Tue 05:42

By Rocky Swift
TOKYO, Oct 27 (Reuters) - Japanese government bonds (JGBs) retreated on Tuesday as a rebound in AI-related shares sapped demand for haven assets and investors awaited signals about future rate hikes at central bank meetings this week.
Here are a few details:
The benchmark 10-year JGB yield JP10YTN=JBTC climbed 1.5 basis points (bps) to 2.795%. Yields move inversely to bond prices
US Treasury yields fell overnight as investors positioned ahead of the Federal Reserve rate decision announcement on Wednesday. Equities in both the US and Japan rallied sharply as optimism returned to the AI sector ahead of results from hyperscalers including Alphabet GOOGL.O and Microsoft MSFT.O
The Bank of Japan is widely expected to pause at its October 29-30 meeting after raising rates to 1.25% in September, with many market participants looking for a hike to 1.5% in December and some seeing January as an alternative
"With US hyperscaler earnings and the Japanese and US policy meetings coming from mid-week, the yen rates market may struggle to find direction," Shinichiro Kadota, head of FX and rates strategy at Barclays, said in a note
Former BOJ Governor Haruhiko Kuroda said in a newly published book that he was sure the central bank would examine whether to raise rates by 25 bps at each upcoming policy meeting to bring them close to neutral levels. Former Deputy Governor Masazumi Wakatabe wrote in a separate book that the BOJ would need to do "quite some explaining" if it raised rates when real growth is negative and inflation is mostly cost-push
The yield on the 20-year JGB JP20YTN=JBTC added 1 bp to 3.595%, while the 30-year yield JP30YTN=JBTC held steady at 3.805% 
The 2-year yield JP2YTN=JBTC, the one most sensitive to BOJ policy rates, rose for a second day, up 1 bp to 1.885%. The 5-year yield JP5YTN=JBTC rose 1.5 bps to 2.240%

 (Reporting by Rocky Swift in Tokyo; Editing by Jochelle Mendonca)
 ((rocky.swift@thomsonreuters.com;))