Forex
Japan's Bond Market Braces for Rate Hike Expectations
The latest Japan 2-year JGB auction saw demand drop to its weakest level since 2016, according to Serrari Group. This is attributed to investors positioning for tighter Bank of Japan monetary policy.
The bid-to-cover ratio fell to 2.97 from 3.63 previously and remains below the 12-month average of 3.74. The tail also widened sharply to 0.034 from 0.007, indicating weaker bidding conditions.
This trend is reinforced by the fact that two-year JGBs are highly sensitive to expectations for monetary policy. As a result, bond investors appear to be preparing for another potential Bank of Japan rate increase.