JGBs plunge following rally in energy prices, Nikkei 225 highest since December last year

The Japanese government bonds plunged Monday as investors moved away from safe-haven buying amid gains in riskier assets including crude oil and equities.

The benchmark 10-year bond yield, which moves inversely to its price, rose 1-1/2 basis points to 0.07 percent, the yield on long-term 30-year note jumped 7-1/2 basis points to 0.77 percent and the yield on short-term 3-year note climbed 1/2 basis point to -0.14 percent by 06:00 GMT.

The JGBs have been closely following developments in oil markets because of their impact on inflation expectations, which is well below the Bank of Japan's target. Crude oil prices jumped more than 4 percent after OPEC and non-OPEC countries agreed to cut production for the first time since 2001. The International benchmark Brent futures rose 4.40 percent to $56.73 and West Texas Intermediate (WTI) climbed 5 percent to $54.07 by 06:20 GMT.

Markets remain focused on the Federal Reserve's last monetary policy decision for 2016, which is scheduled to be released on December 14. The benchmark 10-year bond witnessed a heavy sell-off, pushing yields by 3 basis points to 2.49 percent.

The Federal Reserve is expected to increase the target range of the key interest rate by 25 basis points to 0.50-0.75 percent on December 14, with a unanimous decision. Little change to the statement, though the Committee is likely to acknowledge that market-based measures of inflation compensation have risen further.

With the economy seemingly close to ‘full employment’, there is a now a case for more hawkish guidance. The sell-off in US Treasuries reflects concerns that looser fiscal policy may cause the Fed to move more aggressively. For now, the Fed will probably not change its rhetoric, while it waits to see what fiscal policy measures are enacted, said Lloyds Bank in its research note.

Meanwhile, the benchmark Nikkei 225 closed 0.84 percent higher at 19,155.03 (highest since December last year). While at 06:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index remained highly bearish for third straight day at -137.40 (lower than -75 represents bearish trend).