Japan bonds steady ahead of BOJ decision; strong auction lends support

Japanese government bonds (JGBs) remained stable on Thursday, the day before the Bank of Japan’s monetary policy announcement, thanks to robust demand at a 2-year note auction. The market benefited from a rise in US Treasuries following the Federal Reserve's decision to maintain interest rates and hint at a potential December hike.

Analyst Yuhi Kawano from Mizuho Securities noted the market appeared less hawkish than anticipated, indicating a slower pace of rate hikes, which should bode well for the yen bond market. The benchmark 2-year JGB yield decreased by half a basis point to 1.895%, signaling that bond prices rose. The bid-to-cover ratio for the 2-year auction increased to 4.03, up from 3.89 at the previous sale.

The 10-year JGB yield climbed by 0.5 basis points to 2.83%, while the 5-year yield stayed steady at 2.265%. The 30-year yield increased by half a basis point to 3.88%, whereas the 20-year JGB had not been traded as of 0514 GMT. Economists surveyed by Reuters anticipate the BOJ to maintain interest rates during their meeting on Friday and raise them by a quarter-point in December.