Japan’s bond yield curve steepens ahead of 30-year debt auction

TOKYO: Japan’s government bond yield curve steepened on Monday as caution grew ahead of an auction of 30-year debt in the next session, with rising oil prices and a weaker yen stoking inflation fears.

The curve, a line plotting yields with various bond tenors, steepens when the gap between shorter and longer ends widens.

On Monday, it bear-steepened as long-term interest rates rose faster than short-term rates.

The 10-year JGB yield climbed 3 basis points (bps) to 2.410%, its highest since February 1999, while yields on the 20-year and 30-year JGBs rose more sharply.

The yield on 20-year bonds jumped 5.5 bps to 3.32% and that of 30-year bonds rose 6 bps to 3.735%. Yields move inversely to bond prices.

“The market is cautious about the 30-year bond auction as the 10-year bond sale last week turned out to be much weaker than expectations,” said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management.

“Relative to a selloff of super-long bonds, the 10-year JGBs are firm.”

In an expletive-laden Easter Sunday social media post, US President Donald Trump threatened to target Iran’s power plants and bridges on Tuesday if the Strait of Hormuz is not reopened, setting a precise deadline of Tuesday 8 p.m. Eastern Time (0000 GMT).

The 30-year bond auction will be held soon after the Iran deadline.

At the 10-year bond auction last week, demand was hurt as Trump dashed hopes for a swift end to the Iran war.

On Monday, JGB yields also tracked US Treasury yields higher following strong US payrolls data, said Lisa Mochizuki, an analyst at SMBC Nikko Securities.

The two-year yield rose 1 bp to 1.395%, a fresh 31-year high.

The five-year yield rose 2.5 bps to 1.82%.