Japan’s 40-year bond yield slips for fourth session on demand from foreigners

TOKYO: Japan’s 40-year government bond yield slipped for a fourth straight session on Tuesday, supported by demand from foreigners after the yield hit a record high ahead of the country’s lower house election over the weekend.

The 40-year JGB yield fell 8.5 basis points to 3.73%, its lowest since January 9. The 30-year yield slipped 6.5 bps to 3.495%. Yields move inversely to bond prices.

These bond yields had hit a record high last month, after PrimeMinister Sanae Takaichi pledged to suspend taxes on food for two years in her election campaign. Her Liberal Democratic Party won in a landslide at the election.

“Foreign investors are continuously scooping up super-long-dated bonds as their prices fell,” said Tomoaki Shishido, a senior rates strategist at Nomura Securities. Foreigners bought 2 trillion yen ($12.87 billion) of JGBs in the week ended January 31, the biggest amount since April last year, becoming net buyers of domestic bonds for a fifth straight week, according to the finance ministry.

A 40-year bond auction held that week had a strong outcome and proved firm demand from foreigners, said Shishido.

Japanese bonds rally as 40-year auction shows resilient demand before election

The benchmark 10-year JGB yield fell 5.5 bps to 2.235%. The five-year yield fell 4 bps to 1.7%. The two-year yield fell 1 bp to 1.3%.

On Monday, shorter-maturity bond yields jumped as the market braced for a weaker yen. The 2-year bond yield rose to its highest since May 1996, the 5-year JGB to a record high on that day.

On Tuesday, the shorter-dated bond yields fell, as the yen did not weaken, diminishing expectations for the Bank of Japan’s early interest rate hike, said Eiichiro Miura, senior general manager of investments at Nissay Asset Management.

The market had expected a revival of the so-called Takaichi trade in the post-election period, where a fiscal-dove primeminister would send the yen and bonds weaker while stocks rose.  A weaker yen typically boosts import costs, driving domestic prices higher.