Benchmark JGB yields extend monthly surge on issuance shuffle

TOKYO: Benchmark Japanese bonds slid on Friday on expectations the government will sell more of the securities as it seeks to fund massive new spending.

The 10-year Japanese government bond (JGB) yield rose 3 basis points (bps) to 1.825%, set to rise 17 bps in November in what would be its steepest monthly climb in six.

The two-year yield held at a 17-year high after an auction of the securities. JGB yields have been surging of late on concerns over the size of Prime Minister Sanae Takaichi’s stimulus plan and how much may be funded by debt.

At a semi-regular meeting with Ministry of Finance officials on Thursday, primary dealers of JGBs said they saw scope to increase the issuance of two-, five- and 10-year securities, and would like to see decreased issuance of super-long-dated debt.

“Rises on those (long-term) yields were capped because of the outcome of the primary dealers’ meeting,” said Takahiro Otsuka, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. The Ministry of Finance sold about 2.7 trillion yen ($17.26 billion) worth of two-year JGBs.

The bid-to-cover ratio, a measure of demand, was 3.53, slightly below average for the past year and down from 4.35 at the previous sale.

The auction was a little weak as the market is cautious about a potential rate hike by the Bank of Japan, said a market analyst at a domestic brokerage.

Data on Friday showing faster core inflation in Tokyo highlighted the chances the BOJ may act as soon as next month.

The government plans to expand JGB sales in the current fiscal year by around 7 trillion yen, Reuters reported on Thursday, citing two officials familiar with the matter.

The 20-year yield rose 3 bps to 2.845%.

The 30-year yield rose 1.5 bps to 3.345%.

The two-year JGB yield increased 1 bp to 0.975%, the highest since June 2008.

The five-year yield was flat at 1.315%, also near a 17-year high.