Japanese government bonds edge lower ahead of 40-year debt auction

TOKYO: Japanese government bonds (JGBs) edged lower on Wednesday ahead of a closely watched auction that will test investor demand for super-long-term debt as the nation ramps up spending.

The benchmark 10-year JGB yield rose 0.5 basis point (bp) to 1.805% in early trading, after a 2.5 bps increase in the previous session.

The 20-year yield rose 0.5 bp to 2.825%.

The Ministry of Finance is due to sell about 400 billion yen in 40-year JGBs, the nation’s longest tenor, a week after yields on the debt surged to a record high on concerns over the size of Prime Minister Sanae Takaichi’s economic stimulus plan.

The cabinet on Friday approved a 21.3 trillion yen ($135.95 billion) spending package, significantly larger than the previous year’s.

Takaichi has said the plan would be funded with new bond issuance if tax revenue is not sufficient, and overall JGB issuance is expected to be smaller than last year’s.

Shorter-term yields have also been on the rise on expectations the Bank of Japan may be closer to raising its policy rate.

The BOJ is “nearing” a decision to raise interest rates, board member Kazuyuki Masu was quoted as saying in a Nikkei newspaper report over the weekend.