Japan debt: 2-year auction beats expectations

Japanese government bond yields held steady on Thursday as investors awaited the Bank of Japan's policy decision scheduled for Friday. The market found support from robust demand at a recent auction of two-year notes.

The bid-to-cover ratio for the two-year auction reached 4.03, up from 3.89 at the previous sale last month. Following the results, the benchmark two-year JGB yield dropped by half a basis point to 1.895%, reversing an earlier slight increase.

Other maturities showed mixed movement. The ten-year JGB yield rose by 0.5 basis points to 2.83%, while the five-year yield remained unchanged at 2.265%. The thirty-year yield increased by half a basis point to 3.88%. The twenty-year JGB had not traded as of 0514 GMT.

Sentiment was further influenced by US Treasury gains after the Federal Reserve left interest rates unchanged. The central bank provided few signals regarding a potential hike at its next meeting in December.

Yuhi Kawano, a market analyst at Mizuho Securities, said the market viewed the Fed's stance as less hawkish than expected. He noted that this environment reduces the perceived need for the Bank of Japan to raise rates at a rapid pace, a dynamic that should support the yen bond market.

A Reuters poll of economists indicates the Bank of Japan is likely to leave rates unchanged on Friday. The same poll projects a quarter-point rate hike in December.