Benchmark JGB yields touch 17-year high on spending concerns

Japanese government bonds (JGBs) slid on Wednesday, sending benchmark yields to a 17-year high, as concerns swirled about the size of Prime Minister Sanae Takaichi's stimulus package.

The 10-year JGB yield rose 1.5 basis points (bps) to 1.76%, and earlier reached 1.775%, the highest since June 2008. Yields move inversely to bond prices.

JGBs recovered some losses after the results of an auction of 20-year securities showed investors weren't abandoning the super-long sector.


A ruling-party panel proposed on Tuesday compiling a supplementary budget exceeding 25 trillion yen ($160.86 billion) to fund Takaichi's stimulus plan. That would be much larger than the previous year's extra budget of 13.9 trillion yen.

"The clear upward trend in ultra-long-term interest rates this week is likely driven not only by caution ahead of the 20-year auction but also by concerns about a further upward revision in the scale of fiscal expansion," Mizuho Securities chief bond strategist Noriatsu Tanji wrote in a note.

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A sale of about 800 billion yen in 20-year JGBs by the Ministry of Finance had a bid-to-cover ratio of 3.28, down from the previous sale but around the average over the past year.

Even so, the so-called tail of the auction, which measures the difference between the average and lowest prices, was 0.31, the worst reading since the sale in May.

The 20-year yield rose 1 bp to 2.795% after touching the highest since 1999 in the previous session. The 30-year yield was flat at 3.310%, recovering from an earlier increase to a near-record of 3.34%.

The two-year yield rose 1 bp to 0.93%, and the five-year yield rose 1.5 bp to 1.265%.

($1 = 155.4100 yen).