Wednesday’s auction of two-year Japanese government bonds drew stronger demand than the 12-month average, with elevated yields underpinning buying interest.

The bid-to-cover ratio for the sale came in at 3.89, up from 2.97 in the previous auction and above the 3.75 average over the past 12 months.

Additional evidence of firm demand: the tail—the gap between the average accepted price and the lowest accepted price—was 0.014, compared with 0.034 a month earlier.

After the results were released, the decline in bond futures narrowed.

The sale delivered a solid outcome thanks to the high yield.

The market is paying close attention to monetary policy in both Japan and the United States, with the U.S. employment report due later this week a key focus, said Miki Den, senior rates strategist at SMBC Nikko Securities.

The two-year yield, which is relatively sensitive to monetary policy expectations, fell 1.5 basis points to 1.945% on Wednesday. Earlier this week, it briefly touched 1.975%, the highest level since 1995.

The selloff comes amid speculation that the Bank of Japan may raise interest rates again as early as next month. Earlier this month, the BOJ lifted its benchmark rate to the highest level in 31 years.

A former head of monetary policy at the Bank of Japan expressed a similar view.

Kazuo Momma said in an interview with Bloomberg that the two-year Japanese government bond traded above the one-year average today and did not repeat the dislocations seen in the August auction.

This outcome is undoubtedly good news for Japan and for the broader G10 fixed-income market. While the yield is slightly below 2%, it is close enough for investors seeking a downward move in the short end of the curve.

In addition, MUFG-MS also performed poorly, with 22% of the bonds, which will provide support for solid secondary-market trading.—Mark Cranfield, Markets Live strategist.

Overnight index swaps show about a 23% probability of a move in October, while a 25 basis-point increase is almost fully priced in for December.

Meanwhile, since last week, policymakers in Japan and the United States have stepped up verbal intervention to stem the yen’s decline, helping to lift market sentiment.