Super-long JGB yields extend climb from multi-week lows after weak auction

By Kevin Buckland

TOKYO (Reuters) -Lengthy-dated Japanese authorities bond yields rose farther from three-week lows on Wednesday, after demand at a carefully watched 40-year bond public sale dropped to its lowest stage since July.

The 40-year JGB yield jumped 9 foundation factors (bps) to three.375%, as of 0514 GMT, rebounding sharply from 3.285% on Tuesday, its lowest level since Could 7.

The 30-year JGB yield superior 10 bps to 2.93%, from 2.83% on Tuesday, which was the bottom stage since Could 2.

The 20-year yield bounced 8 bps to 2.415%, after tumbling to a three-week low of two.31% within the prior session.

The bid-to-cover ratio, which measures complete bids relative to the quantity of securities provided, fell to 2.21 from 2.92 on the earlier 40-year bond public sale in March.

The public sale was carefully watched for indicators of a restoration in demand after an aggressive selloff final week noticed super-long JGB yields spike to document highs, with help from conventional patrons of long-dated securities absent as life insurers and pension funds trim purchases this 12 months.

Analysts stated the sharp drop in yields on Tuesday, after a Reuters report that the Ministry of Finance was contemplating chopping super-long bond issuance to ease market strain, made the bonds overpriced, deterring patrons on the public sale on Wednesday.

“The smooth public sale outcome and market response doubtless fan expectations for the MOF to additional tweak the sizes of super-long-end auctions,” with elevated issuance of 2-year or 5-year paper as a probable outcome, stated Frances Cheung, head of FX and charges technique at OCBC.

The Financial institution of Japan is unlikely to change its quantitative tightening plans to help the bond market at this stage, “however ought to long-end yields enhance extra quickly, some shifts … can’t be dominated out,” he stated.

BOJ Governor Kazuo Ueda stated on Wednesday that the central financial institution will watch whether or not swings in super-long yields have a knock-on impact for shorter maturities, which have a bigger impression on financial exercise.

Japanese Finance Minister Katsunobu Kato reiterated on Wednesday that he’s carefully monitoring developments within the bond market, echoing comparable remarks made the day past.

Final week, 30- and 40-year JGB yields hit document peaks at 3.185% and three.675%, respectively, whereas the 20-year yield hit a multi-decade excessive of two.60%.

Yields had been rising steadily for weeks, however promoting strain intensified abruptly amid rising considerations over debt ranges in main developed economies, significantly Japan and the US.

The ten-year JGB yield gained 6.5 bps to 1.525% on Wednesday, after dipping to 1.455% for the primary time since Could 16 within the earlier session.