Expectations for the widest bond price swings in more than four years and the weakest demand at an auction in nine months added to signs of waning debt market confidence in Bank of Japan Governor Haruhiko Kuroda.
Implied volatility of Japan’s 10-year note futures, a measure of expected moves used to price options, climbed to 7.23 percent yesterday, the highest since November 2008, according to data compiled by Bloomberg. A sale of 20-year debt yesterday drew the lowest demand since August 2012. Expected price fluctuations for U.S. Treasury futures rose to 5.06 percent from 3.61 percent on April 30.
“Confidence in the BOJ’s monetary policy is starting to be shaken,” said Toru Suehiro, a market economist in Tokyo at Mizuho Securities Co., one of the 24 primary dealers obliged to bid at government debt auctions. “Doubt is the biggest enemy for monetary policy.”
Japan’s benchmark 10-year yield jumped to 1 percent last week, a one-year high, even after the BOJ doubled bond purchases in April to end 15 years of deflation in the world’s third-largest economy. While Kuroda indicated this week that the financial system can weather an increase in yields if it occurs alongside an economic recovery, mortgage and corporate borrowing rates have started climbing as consumer prices continue to fall.
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