(Bloomberg) — Global debt markets extended an end-of year selloff Wednesday, prompting additional bond purchases from the Bank of Japan.
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The central bank announced an unscheduled bond buying operation as a rise in global yields threatened to spill over to Japan. Earlier this month, the BOJ had raised its tolerated ceiling for 10-year yields, surprising investors.
The yield on Australian benchmark 10-year debt climbed 22 basis points to 4.05% in thin trading after a two-day holiday, amid concern that China’s reopening will keep high inflation lingering for longer. And 10-year Treasury yields climbed one basis point to 3.85%, the highest in six weeks.
Some investors fret that a rapid reopening from the world’s second-largest economy could delay an expected retreat in inflation next year and weigh on global bonds. Still, moves are being exacerbated by holiday-thinned trading and year-end positioning and others caution about reading too much into significant swings in yields.
The BOJ offered to buy unlimited amounts of two-year notes at a fixed yield of 0.03% and five-year debt at 0.24%, among other purchases. That’s in addition to its standing daily offer to purchase unlimited quantities of benchmark 10-year bonds at the central bank’s policy ceiling of 0.5%.
Japan’s five-year yield fell 0.5 basis points to 0.235% while the other tenors didn’t trade.
BOJ Governor Haruhiko Kuroda had stressed Monday that the bank’s recent tweaks to its bond yield control program were not the beginning of an exit of monetary easing, but a way to make it sustainable and run smoothly.
“The BOJ is trying to stop a rise in medium-term yields that’s driven by speculation of an end to its negative-rate policy,” said Eiji Dohke, chief bond strategist at SBI Securities Co. in Tokyo. But “such speculation is unlikely to disappear. The BOJ will have to keep buying as yields stay under upward pressure.”
German bunds led a selloff in worldwide debt Tuesday and Treasuries slid as the year’s final sales of US sovereign debt began. China said Monday it will no longer subject inbound travelers to quarantine from Jan. 8, putting the country on track to emerge from three years of self-imposed global isolation.
–With assistance from Michael G. Wilson.
(Updates with additional context, quote.)
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