JGBs post biggest fall since September following U.S. Treasuries, Fed Dec rate hike probability jumps to 80 pct

The Japanese government bonds plunged Thursday following the weakness in the U.S. Treasuries. The implied probability of the Federal Reserve December rate hike jumped to 82 percent despite market speculation that the move is less likely after Donald Trump’s victory.

The benchmark 10-year bond yield, which moves inversely to its price, rose 4 basis points to -0.037 percent, the yield on long-term 30-year note climbed 4-1/2 basis points to 0.521 percent and the yield on short-term 2-year note jumped nearly 2 basis points to -0.257 percent by 06:30 GMT.

On Wednesday, the United States Republican candidate Donald Trump pinned his victory against Democrat opponent Hillary Clinton in the 2016 presidential election. Investors again revised the outlook for US interest rates after Donald Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 82 percent.

The U.S. bond prices dropped on expectations that U.S. President-elect Donald Trump's policies, such as fiscal expansion and protectionism on international trade, will stoke inflation. It was the biggest daily fall since September 21, the day the BOJ announced its current policy to guide the 10-year yield around zero percent, Reuters reported.

Moreover, the JGBs have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Crude oil prices recovered from previous losses as the U.S. financial markets bounced back from an early Brexit-like slide that followed Donald Trump’s surprise victory in the US presidential election. The International benchmark Brent futures rose 0.71 percent to $46.69 and West Texas Intermediate (WTI) also climbed 0.15 percent to $45.34 at 06:20 GMT.

Meanwhile, the benchmark Nikkei 225 closed up 6.72 percent at 17,344.42 and the broader Topix index closed 5.78 percent higher to 1,376.35 points.