Japan’s 40-year bond yield drops to over a month low after strong auction

TOKYO: Japan’s 40-year bond yield tanked to a more than one-month low on Thursday after an auction saw strong demand, underpinned by easing concerns around the nation’s public finances.

The 40-year JGB yield fell 7 basis points (bps) to 3.31%, its lowest since August 14.

“The 40-year bond auction was strong as expected, because worries about the worsening fiscal health of the nation receded,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

The auction received bids worth 2.6 times the amount sold, higher than 2.1 times at the previous auction.

Super-long JGB yields have been falling from historic highs scaled earlier this month as concerns over Japan’s fiscal outlook ease.

This shift was reinforced by Liberal Democratic Party (LDP) leadership candidate Sanae Takaichi, who toned down her appeal for government spending.

Takaichi is seen as a frontrunner, along with Agriculture, Forestry and Fisheries Minister Shinjiro Koizumi, in the ruling party’s leadership race scheduled for October 4, after Prime Minister Ishiba’s decision to step down earlier this month.

Other positive cues for super-long bonds included the finance ministry’s proposal to cut the quantity of their issuance in liquidity enhancement auctions, Inadome said.

Bets that the yield curve would flatten following a surprisingly hawkish Bank of Japan stance also improved demand for super-long dated bonds, he added.

Expectations that the BOJ will hike rates grew after two BOJ board members voted on Friday to hike interest rates, though any sell-off of super-long bonds may be limited as they have fallen to a relatively cheap level, strategists said.

Bond yields move inversely to prices.

The 30-year JGB yield was flat at 3.155%.

The 20-year JGB yield fell 1 bp to 2.61%.

The 10-year JGB yield rose 0.5 bp to 1.645%.

The five-year yield rose 1 bp to 1.23%.

The two-year JGB yield was flat at 0.925%.