Japan's 40-year bond sale shows weakest demand since July

Japan Times

28-05-2025

Japan's auction of 40-year government bonds on Wednesday met demand that was the weakest since July, as investor appetite fell after volatility surged in global debt markets.
The 40-year yield rose 9 basis points to 3.375% following the sale, as the 30-year tenor jumped 10 basis points.
"Given we have just had a yield shock, I don't think anyone was expecting a really strong sale,' said Stephen Spratt, rates strategist at Societe Generale. Spratt said demand was unimpressive.
The sale was a key test globally for longer tenors amid concern that rising government spending will take budget deficits into dangerous territory. In Japan it was also being viewed as an important gauge of appetite from large institutional investors, who have not filled the gap left by the central bank reducing its purchases.
"The weak bidding for the 40-year bond was probably due to the continued high volatility and the fact that the actual issuance amount will not be reduced for another month, making most investors reluctant to take on risk,' said Ataru Okumura, a senior interest-rate strategist at SMBC Nikko Securities.
Superlong-term government bonds had rallied Tuesday on signs that the Finance Ministry may be prepared to adjust debt issuance following a rout in the market. The moves followed aggressive upward pressure on global borrowing costs last week that drove up yields on long-maturity debt from the United States to Japan.
The average bid-to-cover ratio, a measure of demand, for the bonds was 2.21 for the sale of the Finance Ministry's ¥500 billion ($3.5 billion) issue maturing in March 2065. That was lower than 2.92 at the last auction in March.
"The fact today's auction didn't go very well supports the narrative that the government will adjust its issuance of superlong bonds,' said Kazuhiro Sasaki, head of research at Phillip Securities Japan. "So in a sense, this is a positive for the bond market, because it increases the likelihood that the Finance Ministry will do something.'
The Finance Ministry — in a move that was unusual because of its timing and the wide group of people contacted — sent a questionnaire to market participants on Monday evening that asked for their views on issuance and the current market situation, said people familiar with the situation.
Next month is shaping up as pivotal for the bond market, with the central bank holding a policy meeting on June 16 and 17 at which it is expected to consider any changes to its tapering of debt purchases. Meanwhile, the Finance Ministry is expected to be considering input from market participants on bond issuance.