TOKYO :Yields on long-dated Japanese government bonds rose to new records on Wednesday in the wake of a poor auction result that cast doubt over debt sales looming in the weeks ahead.
Super-long yields have been on the rise, following U.S. Treasury yields higher and as concerns swirled about new fiscal stimulus ahead of a Japanese upper house election slated for July.
The selloff in bonds is a quandary for the Bank of Japan, which is trying to taper its debt purchases and normalise monetary policy. Rising long-term borrowing costs are also a warning sign for the highly indebted Japanese government.
A lack of buyers at the Ministry of Finance’s sale of 20-year JGBs on Tuesday resulted in the worst auction result since 2012, according to analysts.
“For demand for super-long bonds to rebound, the market wants to get greater assurance that there will be a reduction of new bond issuance, which is technically possible within this fiscal year,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
“Sentiment will be weighed down ahead of auctions for 30-year bonds next week, and 40-year bonds the week after.”
The 20-year JGB yield lost 2 basis points to 2.535 per cent after earlier reaching 2.575 per cent, the highest since October 2000.
The 30-year yield rose to as high as 3.185 per cent, a new record. The 40-year yield touched an all-time peak of 3.635 per cent.
JGBs have been under pressure all year and saw a dramatic sell-off in March triggered by a slide in German bunds. Recently, several political parties have been calling for consumption tax cuts, which Prime Minister Shigeru Ishiba has so far resisted.
Above-target inflation and the possibility of more fiscal stimulus are adding to upward pressure on yields, though a sustained flight from JGBs was unlikely, said Nikko Asset Management Chief Global Strategist Naomi Fink.
“The move does highlight the need for the Japanese government to be mindful of its commitment to return Japan to primary balance,” Fink said.
An uptick in inflation portends less bond purchases by the BOJ, leaving the market vulnerable to the demand of more price-sensitive buyers, said Sally Auld, chief economist at NAB.
“It sort of feels a bit like the perfect storm for the JGB market at a time when generally investors seem to be a little bit more alert or a little bit more worried about the long-end of yield curves in general and rising term premiums,” she said.
The benchmark 10-year JGB yield was flat at 1.515 per cent. The two-year yield slid 1 basis point to 0.715.
