JGB yields march to fresh highs; BOJ rate hike path in focus

By Brigid Riley

TOKYO, Feb 18 (Reuters) - Japanese government bond (JGB) yields rose to their highest levels in more than a decade on Tuesday as an auction for 20-year bonds saw low demand as investors continued to puzzle out how fast and high the Bank of Japan (BOJ) may increase interest rates.

The 10-year JGB yield JP10YTN=JBTC ticked up 2.5 basis points (bps) to its highest since November 2009 to 1.41%, while 10-year JGB futures 2JGBv1 fell 0.37 points to 139.01 yen.

The 20-year JGB yield JP20YTN=JBTC climbed 6 bps to 2.065%, a level last seen in April 2011, following the auction of corresponding bonds. It was last at 2.06%.

The bid-to-cover ratio, a common measure at auctions where a large number indicates more demand, came in at just 3.06 compared with 3.79 in January. It was the weakest showing of demand since October.

Analysts cited uncertainties about the outlook for the BOJ's rate hike path among reasons for the poor result.

"While the yield level looked fairly positive for the auction, we're in a situation where we don't know where yields will stop. That factor worked as a negative," said Yurie Suzuki, a market analyst at Mizuho Securities.

Yields move inversely to bond prices, rising as bonds are sold and prices fall.

Market players have been expecting the BOJ to continue gradually hiking rates as it normalises monetary policy, but questions remain about the pace and extent.

That's creating a strong sense of uncertainty, putting upward pressure on bonds, said Suzuki.

Recent hawkish comments from policymakers and sticky inflation are pushing forward rate hike expectations, shaking long-held views that rates would not rise much.

Remarks by BOJ board member Hajime Takata on Wednesday and a domestic CPI report on Friday will be in focus.

The two-year JGB yield JP2YTN=JBTC and five-year yield JP5YTN=JBTC both ticked up 1.5 bps to 0.82% and 1.065%, respectively, sitting at their highest since October 2008.

The 30-year JGB yield JP30YTN=JBTC touched a one-month high of 2.345%.