Japan's 10-Year Bond Auction Gives Support Ahead of 30-Year Sale

Mint

01-07-2025

Demand at Japan's sale of 10-year government notes was relatively strong in a boost to sentiment going into a key auction of 30-year bonds later this week.
The bid-to-cover ratio was at 3.51, higher than the 12-month average of 3.14, as expectations for rate hikes by the central bank receded and upward pressure on longer-maturity yields eased. Ten-year bonds rallied.
Japan's sovereign debt auctions have been in the spotlight since late May after a poorly received auction of 20-year bonds sent super-long yields to record highs. That spike in yields flowed through into global debt markets, where investors have been on guard over expanding government deficits, and prompted Japan's Ministry of Finance to tweak its issuance plans from this month.
'Market sentiment seems to be good for JGBs entering a new quarter, especially after the meeting between the MOF and primary dealers late last month resulted in a reduction of super-long bond issuance amounts,' said Anmol Agrawal, a strategist at Intouch Capital Markets Pte. 'The litmus test for markets will now be the upcoming 30-year bond auction on Thursday.'
The 10-year JGB yield fell 4 basis points to 1.39% to the lowest since June 13th after the auction results. Bond futures rose 20 ticks to 139.22.
Ten-year notes serve as a benchmark for Japan's long-term lending rates, and play a key role in influencing mortgage rates and corporate borrowing costs.
The bond auction was 'very strong,' said Miki Den, a senior rates strategist at SMBC Nikko Securities Inc. Many investors may have judged that the Bank of Japan cannot raise interest rates until there's a recovery in sentiment in the automobile sector, which dropped significantly in the Tankan survey, he said.
The sale comes after results from a confidence survey among Japan's largest manufacturers edged up in June. That said, there are lingering concerns as the auto sector remains under pressure as Japan continues to seek a comprehensive agreement that includes sector-specific tariffs which includes carmakers.
But still, the lack of a meaningful decline in 30- and 40-year yields suggests that caution surrounding super-long bonds remains, as the market still has to navigate a 30-year bond sale on Thursday.
What Bloomberg Strategists Say...
JGB futures are firmer after Tuesday's 10-year auction produced solid metrics, but the good mood will struggle to sustain after the strong Tankan report that came earlier.
The data opened the door for BOJ Governor Ueda to lean hawkish when he speaks later today at Sintra in Portugal. With a tricky 30-year debt sale still to come on Thursday, JGB traders are likely to curb their enthusiasm.
— Mark Cranfield, MLIV Strategist. Read more on MLIV
The bid-to-cover ratio at Tuesday's sale was slightly lower than 3.66 at last month's auction of that tenor. The tail, or gap between average and lowest-accepted prices, came in at 0.03, compared with 0.01 previously.
In order to stabilize demand for Japanese government bonds, the finance ministry announced changes to its bond issuance plan in June. The 10-year issuance amount was left unchanged, underscoring steady investor appetite for the sector. The ministry will reduce issuance of 20-, 30- and 40-year bonds from this month.
Separately, the Bank of Japan said last month it would slow down its withdrawal from the market from next year in a move aimed at ensuring stability.
With assistance from Masahiro Hidaka, Umesh Desai and Hidenori Yamanaka.
This article was generated from an automated news agency feed without modifications to text.