Japan's 10-Year Bond Auction Sees Strong Demand Amid Rate Hike Speculation

According to Odaily, Japan's 10-year government bond auction on Tuesday attracted stronger demand than the average over the past 12 months, despite rising market expectations for a near-term interest rate hike by the central bank. The bid-to-cover ratio reached 3.59, surpassing the 2.97 from the previous auction in November and the 12-month average of 3.20. This auction followed remarks 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 raising rates and take appropriate action, adding that financial conditions would remain accommodative even after a rate increase. Currently, the swap market indicates about an 80% chance of a rate hike at the December 19 policy meeting, with the likelihood for January rising 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 short-term debt issuance 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 treasury bill supply by 6.3 trillion yen.