Japan's 10-year government bond yield surged 7.5 basis points to 2.985 percent Friday, tracking a U.S. Treasury selloff fueled by rising crude oil prices and Middle East tensions.
The 20-year Japanese government bond yield gained seven basis points to 3.82 percent. The moves reflect institutional investors repricing duration risk as global macro conditions shift.
The selloff rippled across Asia-Pacific. Australia's three-year yield jumped as much as 20 basis points to 5.05 percent, its highest level since 2011. New Zealand's two-year yield climbed 24 basis points.
U.S. Treasuries bore the initial shock Thursday. Oil's spike reignited inflation expectations among bond traders, pressuring prices lower. The Treasury Department's first expanded buyback operation also absorbed fewer bonds than anticipated, leaving the market to absorb supply at higher yields. Benchmark U.S. yields now approach the 5 percent level.
Eiichiro Miura, senior general investment manager at Nissay Asset Management, said overseas yields have risen on higher oil prices and inflation concerns. He sees Japan's 10-year yield crossing 3 percent, a level last touched in 1996.
Miura added that a Bank of Japan signal next week of potential rate increases twice by year-end would likely support longer-dated bonds. The timing matters: investors are already adjusting positions ahead of the BoJ meeting.
Deborah Tan, an analyst at Moody's, said the Middle East conflict has forced revisions to Japan's growth and inflation forecasts. Higher inflation combined with ongoing fiscal support is compounding upward pressure on the yield curve, Tan said.
