Japanese government bonds rally as demand increases at 20-year debt sale

TOKYO: Japanese government bonds rallied on Tuesday, as a recent run-up in yields drew strong demand at an auction of 20-year securities. The benchmark 10-year JGB yield fell 1.5 basis points to 2.260%, while the 20-year yield slid 1 bp to 3.135%.

Yields move inversely to bond prices. Bond yields have been rising around the world as the raging war in Iran stoked concerns of an economic slowdown and the need for central banks to cap inflation caused by surging oil prices.

The 20-year yield briefly rose to a five-week high before the Ministry of Finance’s sale of about 800 billion yen ($5.03 billion) in the notes.

The auction’s bid-to-cover ratio, a measure of demand, rose to 3.25, the highest since December 2025.

The auction tail was 0.009, near the lowest on record and another positive indicator for uptake among buyers.

The MoF’s plan to reduce issuance of long-term JGBs in the next fiscal year is expected to shore up demand at debt sales, said Gen Taniguchi, market analyst at Mizuho Securities.

“These changes should help to tighten up supply/demand in the super-long sector quite significantly, as could be apparent confirmation that the MoF intends to keep shortening the average maturity of its fresh issuance,” Taniguchi said in a note before Tuesday’s auction.

The Bank of Japan is widely expected to leave its key interest rate unchanged at its policy meeting on Thursday.

Still, surging imported energy costs and a weakening yen are strengthening the case for a quicker pace of rate hikes.

Speaking in parliament, BOJ Governor Kazuo Ueda said underlying inflation is accelerating toward the bank’s 2% target and reiterated the central bank’s readiness to step into the JGB market if necessary.

The 30-year yield edged 0.5 bp lower to 3.545%.

The yield on the 40-year JGB, Japan’s longest tenor, fell 0.5 bp to 3.785%.

The two-year yield, the one most sensitive to Bank of Japan policy rates, was flat at 1.275%. The five-year yield fell 1 bp to 1.680%.