February 6, 2018 / 6:17 AM / 3 months ago

JGBs gain as Japanese stocks plummet on risk aversion

TOKYO, Feb 6 (Reuters) - Japanese government bond prices rose on Tuesday as Tokyo stocks plunged and sent investors scurrying for safety in debt.

The five-year JGB yield was half a basis point lower at minus 0.090 percent.

The benchmark 10-year yield declined half a basis point to 0.075 percent after touching 0.065 percent, its lowest since Jan. 11.

The 10-year yield had tracked a rise in global yield and reached a seven-month high of 0.095 percent towards the end of January. But it fell on Tuesday as a heavy sell-off in global equities caused government bond yields, like those of U.S. Treasuries, to retrace their recent gain.

Given the scope of the drop in equities - the Nikkei dropped more than 7 percent at one stage on Tuesday - the decline by JGB yields was limited.

“Unlike Treasury and euro zone yields, which had a lot of room to fall after their massive rise, JGB yields had not risen very much to start with as the Bank of Japan made it clear that it intends to curb any rise in yields,” said Tetsuya Matsunaga, senior market analyst, Mizuho Securities.

“That is a reason why the decline in JGB yields have not been significant. JGBs are also less attractive compared with its peers, and this also curbs investor demand and limits their yield decline.”

The 10-year JGB yield has been capped firmly under 0.1 percent under the BOJ’s yield curve control scheme. The 10-year Treasury yield, in contrast, yielded a hefty 2.692 percent on Tuesday even after coming off a four-year peak of 2.885 percent marked on Monday.

The Nikkei ended down 4.73 percent on Tuesday after Wall Street posted its worst decline in four years on fears about rising U.S. yields and potentially rising inflation.

Reporting by the Tokyo markets team; Editing by Sherry Jacob-Phillips

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