Japan yields retreat from record highs after sharp two-day surge

By Kevin Buckland TOKYO, Dec 23 (Reuters) - Japanese government bond (JGB) yields retreated on Tuesday as investors bought back the securities following a two-day selloff that saw yields on many tenors soar to all-time peaks. The two-year JGB yield (JP2YTN=JBTC) , which is the most sensitive to monetary policy expectations, leapt to a record 1.12% on Monday, before easing back to 1.1% in the latest session. Yields fall when bond prices rise. The yield had climbed 5.5 basis points (bps) over the previous two sessions, after the Bank of Japan on Friday raised interest rates to a three-decade high and signalled further tightening ahead. The 20-year JGB yield also advanced to an unprecedented high on Monday, and the 30-year yield matched the record peak from earlier this month. So-called super-long yields have accelerated their advance since early November as market speculation picked up about the size of new debt issuance to fund the government’s fiscal spending plans. Reuters reported on Tuesday that new government bond issuance for fiscal 2026 is likely to slightly exceed the 28.6 trillion yen ($182 billion) sold during the current fiscal year. The 20-year yield (JP20YTN=JBTC) declined 2 bps to 2.98% on Tuesday, after reaching 3.025% on Monday. The 30-year yield (JP30YTN=JBTC) lost 1.5 bps to 3.415%, after peaking at 3.445% in the prior session. The 10-year JGB yield (JP10YTN=JBTC) soared to 2.1% for the first time since 1999 on Monday, but was down to 2.045% on Tuesday, although it remained above the symbolic 2% line that had acted as a ceiling for most of the past quarter-century. “We expect the recent weakness in the 10-year JGB, which is vulnerable to upward pressure from both the central bank and fiscal policy, will persist for the foreseeable future,” Yusuke Matsuo, senior market economist at Mizuho Securities, said in a research note. Over a longer time horizon, though, upward pressure on long- and super-long-term yields will ease as the government’s actual policies are revealed, he said. The five-year JGB yield declined 3.5 bps to 1.5% on Tuesday, after climbing to the highest since June 2008 on Monday at 1.535%. ($1 = 156.9800 yen)