Strong demand for Japan's 10-year government bond auction pushes market rate hike expectations to 80%

Jinse Finance reported that demand for Japan's 10-year government bond auction on Tuesday was stronger than the average level over the past 12 months. Despite rising market expectations for a near-term rate hike by the central bank, higher yield levels continued to attract investors. The bid-to-cover ratio was 3.59, higher than the 2.97 at the last auction in November and the 12-month average of 3.20. This auction took place after comments made by Bank of Japan Governor Kazuo Ueda on Monday, which the market interpreted as increasing the likelihood of a rate hike later this month. Ueda stated that the Bank of Japan would weigh the pros and cons of a rate hike and take appropriate action, adding that even after a rate hike, financial conditions would remain accommodative. Currently, the swap market suggests there is about an 80% chance of a rate hike at the December 19 policy meeting, while the probability of a rate hike in January has risen to over 90%. In contrast, just a week ago, the probability of a December rate hike was only 36%. Meanwhile, Japan's Ministry of Finance plans to increase the issuance of short-term debt to help fund Prime Minister Sanae Takaichi's economic stimulus package, raising the issuance of 2-year and 5-year government bonds by 300 billion yen each, and increasing the supply of treasury bills by 6.3 trillion yen. (Golden Ten Data)