It's time to take off bets on the curve flattening, it's been a great run. Some investors had been betting on up to two rate increases this year but the central bank isn't likely to go past one.
People want to secure a higher coupon for tomorrow's sale and they are selling. It is hard to buy notes as people assess when the BOJ will push up rates.
Concern about inflation in overseas markets increased speculation that Japan's central bank will move.
The economy may not withstand higher interest rates. Core prices should have a stable gain of around 0.8 percent before increasing rates.
I was surprised to see speculation of a policy change grow stronger. Bonds tumbled as stocks rallied on the solid economy. Yields are to rise in the next several months.
It was just a matter of time before 10-year yields reached 2 percent. The gain in stocks is helping add to negative sentiment about holding longer bonds.
Bond yields, especially five-year ones, are reaching a fair level to reflect the outlook for a policy shift.
Investors will be reluctant to buy bonds ahead of the five-year notes sale today. There is a concern bond yields will keep rising and the central bank is desperately seeking to raise interest rates.
Investors were more sensitive to bond negative events this week. Bonds were sold ahead of the report on core prices yesterday and I bet people who held medium-term notes, such as five-year securities, lost a lot of money.
The gain in stocks is hurting demand for bonds. Recent reports showed the economy is staying strong and inflation is returning to Japan.
