JGB yields track US peers lower on hopes of early Fed rate cuts

By Kevin Buckland

TOKYO, Nov 6 (Reuters) - Japanese government bond yields fell on Monday, tracking a sharp decline in U.S. Treasury yields on Friday when cooling U.S. jobs market data sparked expectations of early cuts to the Federal Reserve's interest rates.

The 10-year JGB yield retreated 4.5 basis points (bps) to 0.870% as of 0528 GMT, having earlier fallen to a one-week low of 0.865%.

The 10-year U.S. Treasury yield was at 4.585% in Asian hours, after sliding as much as 18.5 bps on Friday to touch 4.484% for the first time since Sept. 26.

Markets are currently expecting the Fed to start cutting rates by May or June of next year.

Bank of Japan Governor Kazuo Ueda

said

on Monday that the country is making progress towards achieving the central bank's 2% inflation target, but not enough to end ultra-loose policy just yet.

The BOJ last week took another small step towards ending decade-old stimulus by saying it will now view 1% as a reference ceiling for the 10-year JGB yield, instead of a hard cap.

"With the October BOJ monetary policy meeting concluded, the likelihood of significant movements in Japan's policy interest rate expectations due to domestic factors has diminished through December," said Shoki Omori, chief Japan desk strategist at Mizuho Securities.

That makes the Treasury market the main driver of Japanese yields, which are likely to continue to decline over this week, Omori added.

Benchmark 10-year JGB futures rose 0.36 yen to 144.44.

The 20-year JGB yield sank 5 bps to 1.640%, while the 30-year yield fell 4 bps to 1.820%.

The two-year yield slipped 1.5 bps to 0.120%. Five-year yields declined 3 bps to 0.420%. (Reporting by Kevin Buckland; Editing by Varun H K)