2018.01.2321:06:00UTC+00Demand for U.S. Treasury Bonds Rise as BOJ Quashes QE Exit Speculation

Appetite for U.S. government bonds increased on Tuesday, driving yields lower after the Bank of Japan extinguished speculation that the central bank may follow the lead of the Federal Reserve by taking on a more hawkish monetary policy.

Political uncertainty in the U.S. also eased as President Donald Trump signed legislation to end a partial shutdown of the federal government.

The two-year note yield fell 3.1 basis points to 2.042 percent, the biggest one day yield decline since December 13 and ending a 14-day stretch of yield gains.

Yield for the 10-year benchmark Treasury note fell 4.1 basis points to 2.622 percent. The 30-year bond yield or the long bond edged down 2.5 basis points, retreating from its highest closing level in three months, to 2.902 percent.

In a widely-expected decision, the BOJ voted 8-1 to retain its target for 10-year Japanese government bond yields at around zero and its short-term deposit rate at -0.1 percent. BOJ Governor Haruhiko Kuroda also indicated that weak inflation in Japan was flat rather than softening, which helped the Japanese yen appreciate against the dollar to 110.38 yen. Still, the Japanese central bank said it was still premature to talk about curtailing its ultra-easy monetary policy stance, as investors have been speculating.