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(Bloomberg) -- Japan’s 40-year government bond yield reached its highest since inception amid a global debt selloff and expectations that the Bank of Japan will hike interest rates in coming months.
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The yield rose as much as 3 basis points to 2.755%, the highest since 2007 when the bonds were sold for the first time. Japan’s 20-year yield also rose to its highest since May 2011 this morning after the nation’s markets reopened following a public holiday on Monday.
Global yields have been rising amid worries about lingering inflation and widening fiscal deficits. The US economy has seen stronger-than-expected data that’s prompted traders to rein in expectations of rate cuts by the Federal Reserve, while the market is also trying to assess the impact of President-elect Donald Trump’s victory.
“Long-end JGB yields are rising with speed, hitting their highest in years,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo. “With US Treasury long-end yields going up, there’s room for Japan’s bond yields to rise further.”
Investors are also preparing for a potential rate hike by the BOJ in the coming months. Overnight index swaps are pricing in a 60% chance of a rate hike at next week’s meeting, and 83% by March. That compares with about 46% and 79% odds respectively a week earlier.
Deputy Governor Ryozo Himino said in a speech on Tuesday that the central bank’s members will discuss whether to raise rates or not this month, but recognizes there are various risks at home and abroad. He also noted in a press conference later that the likelihood of the central bank’s outlook being realized is gradually rising.
READ: BOJ’s Deputy Chief Himino Signals Chance of Rate Hike Next Week
“The BOJ may raise interest rates at its meeting next week if market conditions allow, after watching the moves following the inauguration of President-elect Donald Trump on January 20th,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.
--With assistance from Masahiro Hidaka.
(Updates with comment, new prices and more details)
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