Long-dated Japanese bonds plunge on profit taking; yields likely to sink below zero

Long-dated Japanese government bonds plunged Wednesday as investors cashed in profit after sovereign bonds climbed to its record levels after the United Kingdom voted to end 43 years of European Union membership last week.

Also, rallying crude oil prices and firm equities discouraged traders from safe-haven buying.

The yield on the benchmark 10-year bonds, which moves inversely to its price rose ½ basis points to -0.217 percent, yield on 15-year bonds jumped 1-1/2 basis points to -0.071 percent, super-long 30-year JGB yield climbed nearly 4 basis points to 0.097 percent and 20-year bond yield ticked up 2-1/2 basis points to 0.070 percent by 07:00 GMT.

The Bank of Japan Governor Kuroda said that Japanese banks have no problem with FX funding and they can add funds to market if necessary. Markets have calmed down in the short-term after Brexit vote, he added.

Also, Japan May retail sales remained flat at 0.0 percent m/m, in the line of market consensus of 0.0 percent, from -0.1 percent in April. However, it fell 1.9 percent y/y, against market expectation of -1.6 percent, as compared to -0.9 percent in April.

Moreover, Japan Prime Minister Abe said that he is ready to mobilise all available policy measures to support Japanese economy and he wants the BoJ to provide ample funds to ensure market liquidity and intermediary functioning.

The Finance Minister Aso to pay utmost attention to FX, financial market moves and it is important for G7 to continue to deliver messages on market stability. He also mentioned that uncertainty and risks remain in financial markets after Brexit vote.

Today, oil prices rose as investors took advantage of a two-day slide in crude following Britain's vote to leave the European Union to lock in lower prices. A looming strike at several Norwegian oil and gas fields threatened to cut output in western Europe's biggest producer, also helped support prices on Tuesday. The International benchmark Brent futures rose 0.39 percent to $49.45 and West Texas Intermediate (WTI) climbed 0.71 percent to $48.19 by 06:30 GMT.

The benchmark Nikkei 225 index closed up 1.59 percent at 15,566.83, and the broader Topix index closed higher 1.88 percent to 1,247.69 points.