Super-long JGB yields extend climb from multi-week lows after weak auction
The 40-year JGB yield jumped 9 basis points (bps) to 3.375 per cent, as of 0514 GMT, rebounding sharply from 3.285 per cent on Tuesday, its lowest point since May 7.
The 30-year JGB yield advanced 10 bps to 2.93 per cent, from 2.83 per cent on Tuesday, which was the lowest level since May 2.
The 20-year yield bounced 8 bps to 2.415 per cent, after tumbling to a three-week low of 2.31 per cent in the prior session.
The bid-to-cover ratio, which measures total bids relative to the amount of securities offered, fell to 2.21 from 2.92 at the previous 40-year bond auction in March.
The auction was closely watched for signs of a recovery in demand after an aggressive selloff last week saw super-long JGB yields spike to record highs, with support from traditional buyers of long-dated securities absent as life insurers and pension funds trim purchases this year.
Analysts said the sharp drop in yields on Tuesday, after a Reuters report that the Ministry of Finance was considering cutting super-long bond issuance to ease market pressure, made the bonds overpriced, deterring buyers at the auction on Wednesday.
"The soft auction result and market reaction likely fan expectations for the MOF to further tweak the sizes of super-long-end auctions," with increased issuance of 2-year or 5-year paper as a likely result, said Frances Cheung, head of FX and rates strategy at OCBC.
The Bank of Japan is unlikely to alter its quantitative tightening plans to support the bond market at this stage, "but should long-end yields increase more rapidly, some shifts ... cannot be ruled out," he said.
BOJ Governor Kazuo Ueda said on Wednesday that the central bank will watch whether swings in super-long yields have a knock-on effect for shorter maturities, which have a larger impact on economic activity.
Japanese Finance Minister Katsunobu Kato reiterated on Wednesday that he is closely monitoring developments in the bond market, echoing similar remarks made the previous day.
Last week, 30- and 40-year JGB yields hit record peaks at 3.185 per cent and 3.675 per cent, respectively, while the 20-year yield hit a multi-decade high of 2.60 per cent.
Yields had been rising steadily for weeks, but selling pressure intensified abruptly amid growing concerns over debt levels in major developed economies, particularly Japan and the United States.
The 10-year JGB yield gained 6.5 bps to 1.525 per cent on Wednesday, after dipping to 1.455 per cent for the first time since May 16 in the previous session.
The five-year yield rose 4.5 bps to 1.045 per cent, while the two-year yield added 2 bps to 0.75 per cent.
Benchmark 10-year JGB futures fell 0.66 yen to 138.79 yen.
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