German Bund yield rises to 0.467 pct, Fed concludes policy meeting

Japanese bond yields hit 1-1/2 year highs, reversing sharp falls the previous day, as market participants put the Bank of Japan's commitment to allow yields to move more flexibly to the test.

Germany's 10-year bond yield climbed to a seven-week high on Wednesday, as a selloff in Japanese government bonds rippled out to other major fixed income markets.

Japanese bond yields hit 1-1/2 year highs, reversing sharp falls the previous day, as market participants put the Bank of Japan's commitment to allow yields to move more flexibly to the test.

Bank of Japan Governor Haruhiko Kuroda said on Tuesday the central bank would tolerate moves in the 10-year Japanese government bond (JGB) yield of around 20 basis points from its policy target of zero percent, wider than the range of 10 basis points around the target allowed previously.

As traders put the BOJ's tolerance for higher yields to the test, the benchmark 10-year JGB yield rose to 0.12 percent in its biggest one-day rise in two years.

"Since the BOJ was vague about what its flexibility means, the market wants to test the bank's pain threshold," said Jan von Gerich, chief analyst at Nordea in Helsinki.

"Is it 15 bps? Is it 20 bps? The higher it is, the more it will be taken as a sign that the BOJ is reluctant to intervene and if that is the case then maybe it is not keen to push ahead with easing and that has repercussions beyond Japanese borders."

In Europe, Germany's 10-year bond yield rose 2 basis points to 0.467 pct, its highest level in seven weeks.

Yields on long-dated bonds in France and Spain were 2-3 bps higher on the day.

Massive monetary easing in Japan has helped push down borrowing costs in other parts of the world and encouraged Japanese investors to buy higher-yielding assets overseas.

Higher-rated bonds in the eurozone such as French and German debt have benefited from this Japanese buying but that also means they are at risk if rising JGB yields tempt Japanese investors back home.

Analysts said that while in the short-term there was some spillover from the selloff in Japanese bond markets, a much bigger rise in JGB yields would be needed to have a significant impact on Europe.

The focus was expected to turn to business activity data in the euro area and the United States.

The U.S. Federal Reserve meanwhile is expected to keep interest rates unchanged when it meets on Wednesday.

No press conference is scheduled and only minor changes are anticipated compared with the Fed's June policy statement, which emphasized accelerating economic growth, strong business investment and rising inflation.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)