Japan’s sovereign debt is back in the spotlight as the government prepares for another sale of super-long-term bonds after dismal showings at recent auctions, as demand for the far-end of the curve sputters across the globe.
The results from the finance ministry’s auction of 30-year bonds are due at 12:35 p.m. Tokyo time. The 30-year yield was at 2.945% ahead of Thursday’s sale, down from 3.185% last month, the highest level since it was first sold. Some investors are concerned that yields may surge again if the 30-year bond sale sees little demand.
Disappointing demand at sales of 20-year and 40-year bonds late last month exposed investor concern about a lack of appetite for longer tenors, sending a fresh warning to the government that it may need to rethink issuance plans. Although a 10-year auction this week brought some relief for the Japanese market, expanding deficits are putting longer bonds under pressure worldwide.
“A weaker-than-expected result in the 30-year auction would risk an upward swing in super-long yields, and the 10-year yield may also be pushed up significantly,” said Hiroshi Namioka, a fund manager at T&D Asset Management Co.
Following the jump in long-term yields, Japan’s finance ministry sent out a questionnaire to market participants that asked for their views on issuance and the current market situation, signaling that it may be preparing to adjust debt issuance.
A draft of the government’s annual fiscal policy plan seen by Bloomberg also emphasized the need for more domestic buying of Japanese government bonds.
“There is an expectation of issuance reduction by the MOF, so I don’t think the 30-year auction will be as terrible as some of the recent sales,” said Takashi Fujiwara, chief fund manager at Resona Asset Management Co. in Tokyo. “But it’s also true that we still have to be a bit cautious.”
With assistance from Masaki Kondo and Naoto Hosoda.
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