TOKYO (Reuters) -Long-dated Japanese government bonds saw little relief on Wednesday after a poor auction result sent yields to record levels and as more debt sales loomed in the weeks ahead.
Super-long yields have been on the rise, following U.S. Treasury yields higher and as concerns swirled about how Japan’s government may fund new fiscal stimulus ahead of a upper house election slated for July.
The selloff in bonds is a quandary for the Bank of Japan, which is trying to taper its debt purchases and normalise monetary policy. Rising long-term borrowing costs is also a warning sign for the highly indebted Japanese government.
A lack of buyers at the Ministry of Finance’s sale of 20-year JGBs on Tuesday resulted in the worst auction result since 2012, according to analysts.
“For demand for super-long bonds to rebound, the market wants to get greater assurance that there will be a reduction of new bond issuance, which is technically possible within this fiscal year,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
“Sentiment will be weighed down ahead of auctions for 30-year bonds next week, and 40-year bonds the week after.”
The 20-year JGB yield was flat at 2.555%, after rising 15 basis points on Tuesday to the highest since October 2000.
The 30-year JGB yield fell 1.5 basis points to 3.110%, down from a record 3.14%. The 40-year yield was flat at 3.595% after touching an all-time peak of 3.6% on Tuesday.
Several political parties in Japan have been calling for consumption tax cuts, which Prime Minister Shigeru Ishiba has so far resisted. On Monday, he told parliament that Japan’s fiscal situation was worse than Greece’s at the height of the European debt crisis, according to local media reports.
An uptick in inflation portends less bond purchases by the BOJ, leaving the market vulnerable to the demand of more price-sensitive buyers, said Sally Auld, chief economist at NAB.
“It sort of feels a bit like the perfect storm for the JGB market at a time when generally investors seem to be a little bit more alert or a little bit more worried about the long-end of yield curves in general and rising term premiums,” she said.
The benchmark 10-year JGB yield rose 1 basis point to 1.525%. The two-year JGB yield was flat at 0.725%, as was the five-year yield at 1.005%.
(Reporting by Rocky Swift and Junko Fujita; Editing by Sonia Cheema)
Comments