Yield on 30-year JGB rises 1.5 basis points to 3.205%; yield on 40-year JGB rises 1.5 basis points to 3.440%

Yield on 30-year JGB rises 1.5 basis points to 3.205%; yield on 40-year JGB rises 1.5 basis points to 3.440%

Japan's government bonds (JGBs) saw significant movements in their yields following recent auctions and political developments. The 30-year JGB yield rose by 1.5 basis points (bps) to 3.205%, while the 40-year JGB yield increased by 1.5 bps to 3.440%. These changes come amidst strong demand for 10-year notes and growing concerns about political instability and government spending plans.

The latest auction of 10-year JGBs demonstrated robust demand, with the Ministry of Finance selling around 2.6 trillion yen ($17.65 billion) of notes, receiving bids worth 3.92 times the amount sold. This ratio was the highest since October 2023, indicating substantial investor interest. The 10-year JGB yield fell 2 bps to 1.560% after the auction, reflecting the strong demand and corresponding increase in bond prices.

Bank of Japan Deputy Governor Ryozo Himino's comments also influenced market sentiment. Himino suggested that the central bank should continue raising interest rates, although he warned that rates remain high. Traders currently price in a 46% chance of a quarter-point increase by the end of October. Himino's comments added to the uncertainty surrounding future monetary policy.

The focus now shifts to the upcoming 30-year bond auction scheduled for Thursday, with around 700 billion yen of bonds set to be sold. The 30-year JGB yield rose 1 bp to 3.2% after the 10-year auction results, reaching an all-time high of 3.235% last Wednesday. The 40-year JGB yield also saw an increase, reaching 3.440% from 3.425%.

Political uncertainty remains a significant factor influencing the JGB market. The electoral drubbing of the fiscal hawk coalition led to speculation about the potential resignation of Prime Minister. This political instability has fueled concerns about government debt and deficit spending, driving up yields for longer-term bonds.

Market analysts remain cautious, with Yusuke Matsuo, senior market economist at , noting that attention should stay focused on the upward pressure on superlong rates due to domestic politics and fiscal policy risks. The political environment and government spending plans are expected to continue impacting the JGB market in the coming months.

References:
[1] https://economictimes.indiatimes.com/markets/bonds/benchmark-jgbs-rally-after-auction-shows-strong-demand/articleshow/123647820.cms