Meanwhile, Bank of Japan Governor Kazuo Ueda offered little steer on the chances of an interest rate hike at the end of this month as he talked about risks from a U.S. labour market slowdown and global tariffs in a cautious Friday speech.
The new 10-year note yielded 1.67%, a level last seen in July 2008. The five-year JGB yield was flat at 1.235%, matching the 17-year peak touched twice in the past two weeks.
Indian government bond yields declined on Friday, with the 10-year benchmark hovering around 6.50% as the market awaited a new 320 billion rupee security auction. The Reserve Bank of India’s unchanged policy rate and revised forecasts, coupled with easing OIS rates, have fueled market expectations for a rate cut in December.
The two-year JGB, which is especially sensitive to monetary policy expectations, had yet to trade as of 0450 GMT. Traders currently lay 37% odds on a quarter-point rate hike on October 30, according to LSEG data.
Ueda’s speech was “not suggestive of a rate hike in October,” Morgan Stanley MUFG Securities economists wrote in a client note.
“Ueda pointed out three key checkpoints” – developments in overseas economies, tariff effects on corporate behaviour in Japan, and trends in food prices – and “it is unlikely that all three of these points will be cleared by the October meeting,” they said. Meanwhile, the election of a new party president for the ruling Liberal Democratic Party on Saturday is largely a two-horse race between Farm Minister Shinjiro Koizumi, seen as the continuity candidate, and Sanae Takaichi, known as a fiscal and monetary dove. Fiscal worries flared after the LDP was clobbered in recent upper house elections by opposition parties pledging VAT cuts and other spending measures. That sent 30-year JGB yields soaring to record highs at 3.285% a month ago.
Markets have calmed somewhat since then, and the 30-year yield declined 1.5 basis points (bps) on Friday to stand at 3.155%.
The 20-year yield lost 1 bp to 2.61%.
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