JGBs steady on subdued trade

The Japanese government bonds traded nearly flat on Monday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. On the other hand, it is likely to sump on hawkish Yellen remarks. The yield on the benchmark 10-year bonds, which moves inversely to its price, hovered at -0.0110 marks and the yield on short-term 2-year bonds rose ½ basis points to -0.229 percent by 0600 GMT.

The Fed Chair Yellen on Friday said that if economic gains continue and if the labour market continues to improve that it is appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate. Although lacking a time factor, this continues to point to increased support for a summer rate hike from the FOMC.

“US Federal Reserve chair Janet Yellen's speech on Saturday morning (AEST) saying an interest rate rise is likely in coming months had supported risk sentiment and pushed global rates markets lower,” the ANZ economists said in a note.

On weekend, Japan April retail trade fell 0.8 percent y/y, better than the market consensus of 1.2 percent falls, from down 1.0 percent in March. Moreover, the Japanese bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Today, crude oil prices fell to below $50 after strong dollar weighed on markets and Canadian oil sands production was expected to increase this week. In the early Asian session, crude oil prices crossed $50 mark after the U.S. government reported a larger-than-expected drop in crude inventories last week. According to the US DOE, crude inventories decreased 4.2 million barrels, as compared to a build of +1.3 million barrels seen prior for the week ending 20 May. This came alongside an increase seen in gasoline inventories of +2.0 million barrels, from a draw of -2.5 million barrels seen prior and a decrease in distillate inventories of -1.3 million barrels, against a draw of -3.2 million barrels. The International benchmark Brent futures fell 0.50 percent to $49.70 and West Texas Intermediate (WTI) dipped 0.36 percent to $49.15 by 0600 GMT.

According to Reuters, The results of today's JGB buying operations, which the BoJ published around noon, were largely in line with market expectations. Today, as widely expected, the BoJ purchased JPY 350 billion in the 1-3 year zone, JPY 440 billion in the 3-5 year zone, and JPY 450 billion in the 5-10 year zone under its massive JGB purchase program. Large domestic pension funds are expected to buy super-long JGBs today and tomorrow or their month-end duration adjustments.

The markets will now focus on Aril household spending (2330 GMT), April unemployment rate (2330 GMT), April industrial production (2330 GMT). Meanwhile, the benchmark Nikkei 225 index was closed up 1.39 percent at 17,068.02, and the broader Topix index closed higher 1.19 percent to 1,366.01 points.