The bond police just drove thru the long end of the JGB neighborhood but skips AGBs

Nice rebound in Treasuries yesterday so let's draw a technical line in the sand at about 4.55% in the 10 yr yield and 5% in the 30 yr yield. Lines though have been crossed in the very long end of the Japanese JGB market as the 40 yr yield leaped higher by 12 bps to 3.59% and that is a fresh record high for this security since it was introduced in 2008. I've said before, I like looking at the 40 yr yield in Japan because it is the least manipulated by an overnight rate of just .50%. The 30 yr JGB yield was higher by almost 13 bps to 3.11%. That's the 2nd highest close since 1999 when it was first issued and the 20 yr yield was up by 12 bps to 2.54%.

The catalyst overnight in Japan was a weak 20 yr auction where the bid to cover fell to the least since August 2012 at 2.50 vs 2.96 in the prior auction. The tail of 1.14 is the most since 1987.

Remember too that the BoJ continues to reduce the size of asset purchases. By the way, the 10 yr yield was higher too but just a touch and by 4 bps over the past two days to 1.51% so this move was really on the very longer end of the Japanese curve.

We are not out of the global bond woods as duration can hurt and countries with excessive debt with no plans to control it are being watched more closely by the global bond police. The Nikkei was little changed overnight while the yen is slightly higher.

On the flip side with respect to global bond yields, Australia's government bonds (AGBs) rallied sharply as while the RBA cut rates by 25 bps as expected to 3.85%, Governor Michele Bullock in her press conference said they considered cutting by 50 bps. She is a hawk so this was a surprise. She said "There was a bit of discussion about hold and that was sort of put aside pretty quickly. The discussion then was about 50 and 25. The board was of the view that 25 was the right number on this occasion."

Also, "To the extent that we think there's still restrictiveness in monetary policy, and we think there is a bit, then that would give us opportunities to lower the interest rate further." In response, the 2 yr yield plunged by 16 bps and the 10 yr by 12 bps. The Aussie$ is lower too vs the US dollar.

With a debt to GDP ratio of just 44%, the Australian bond market is not the neighborhood where the bond police are patrolling to the extent they are elsewhere.