Japan’s 10-year bond yield crosses BOJ policy cap

TOKYO, March 3 (Reuters) – Japan’s 10-year government bond yield breached the Bank of Japan’s (BOJ) policy ceiling for the first time in a week on Friday in the run-up to the central bank’s policy meeting next week.

The 10-year government bond yield rose 0.5 basis points (bps) to 0.505%, crossing the BOJ’s policy ceiling for the first time since February 22. It last traded at 0.500%.

“Investors wanted to reduce their positions in 10-year bonds as they are cautious about a surprise tweak in the BOJ policy at the meeting,” said Ataru Okumura, strategist at SMBC Nikko Securities.

The BOJ will hold its two-day policy meeting starting Thursday, which will be the last one for BOJ Governor Haruhiko Kuroda whose second five-year term ends in April.

In the previous session, investors sold more than 1.7 trillion yen (USD 12.46 billion) worth of 10-year bonds at the BOJ’s daily operation of fixed-rate, unlimited amounts of bond buying. On the same day, the finance ministry held an auction for 10-year bonds.

“Some bought 10-year bonds at the auction and sold them to BOJ immediately,” said Okumura.

Elevated US yields added pressure to Japanese peers.

Overnight US Treasury yields continued to climb after strong labor data reinforced concerns that the US Federal Reserve will need to raise interest rates further to cool the economy.

Benchmark 10-year JGB futures rose 0.26 yen to 146.89, as current futures contract matures on March 13.

The two-year JGB yield fell 0.5 bp to -0.045%, while the five-year yield was flat at 0.195%.

Yields on super-long notes rose after hitting multi-months low this week, with the 20-year JGB yield rising 1.5 bps to 1.225% and the 30-year JGB yield rising 2.5 bps to 1.410%.

The 40-year JGB yield rose 4.5 bps to 1.605%.

(Reporting by Junko Fujita; Editing by Nivedita Bhattacharjee)