Citibank: Japanese bond yields may be close to peak, and the fiscal outlook is gradually clear, which will boost investment attractiveness

The Zhitong Finance App learned that Citigroup strategist Fujiki Tomohisa believes that the yield on Japanese treasury bonds may be close to its peak. It is expected that as Japan's fiscal policy prospects gradually become clear, financial institutions will increase their investment in Japanese bonds.

“Japan's treasury bonds are becoming more and more attractive,” Fujiki Tomohisa wrote in an October 5 report. He said that Japan's potential growth rate has not changed significantly. If inflation stabilizes at around 2%, then a reasonable yield on the benchmark 10-year treasury bond should be 2.5% to 3.0%. Citi anticipates that the yield curve of Japanese treasury bonds will flatten as the market further takes into account expectations of future interest rate hikes by the Bank of Japan and improvements in the supply and demand conditions for Japanese bonds.

Japanese bond yields continued to rise under the influence of factors such as concerns about inflation driven by energy prices, the Bank of Japan's withdrawal from the bond market, market expectations that the Bank of Japan will speed up monetary policy tightening, concerns about the Japanese government's fiscal discipline, and a wave of global bond sell-offs. Japan's 10-year treasury bond yield rose above 3% for the first time last month, to 3.116% as of press release; Japan's 30-year treasury bond yield continued to reach a record high, once rising to 4.279% during the day.

However, as the global bond market turns its attention to France's fiscal problems, some investors seem to have begun to turn to Japanese treasury bonds and consider selling French treasury bonds. Attracted by high yields, Japan's 2-year and 40-year treasury bond auctions at the end of September all showed strong demand from investors.