Image Credit: Bloomberg

Japan's 40-year government bond yield has surged to a record high, fueled by a global bond selloff and speculation that the Bank of Japan (BOJ) may raise interest rates in the near future.

The yield climbed by as much as 3 basis points to 2.755%, marking the highest level since the bonds were first issued in 2007. Japan's 20-year yield also reached its highest point since May 2011 after the markets reopened following a public holiday on Monday.

The rise in global bond yields reflects concerns over persistent inflation and growing fiscal deficits. Stronger-than-expected economic data from the US has led traders to scale back expectations for Federal Reserve rate cuts, while markets are also trying to gauge the impact of Donald Trump's election victory.

"Long-end JGB yields are rising rapidly, hitting their highest levels in years," said Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo. "With US Treasury long-end yields increasing, Japan's bond yields have room to rise further."

Investors are also preparing for a potential rate hike by the BOJ in the coming months. Governor Kazuo Ueda indicated last week that the central bank would consider raising the benchmark rate if the economy continues to improve this year, although he refrained from providing specifics on the timing of any increase.

Overnight index swaps are now pricing in a 59% chance of a rate hike at next week's BOJ meeting, with an 84% probability by March. Deputy Governor Ryozo Himino said on Tuesday that the BOJ will discuss the possibility of raising rates at this month's meeting, acknowledging various risks both domestically and internationally.

Paraphrasing text from "Bloomberg" all rights reserved by the original author