Japan's 20-year bonds take first super-long auction since election in stride

Japan's 20-year bond yield held steady on Thursday, barely reacting to a modestly firm auction of the same maturity, the first after Prime Minister Sanae Takaichi's tax-cut pledge had sent its yield to record highs last month.

The 20-year Japanese ‌government bond (JGB) ⁠yield fell ⁠marginally, down 0.5 basis point (bp) at 2.965%.

"The auction outcome was moderately firm and demand was led by foreign investors who can get extra yields by buying hedged JGBs," said Takashi Fujiwara, chief fund manager at Resona Asset Management's fixed income investment division.


The tender took place a month after a weak ⁠20-year auction triggered ‌a meltdown at the super-long-dated JGBs. On that day, Takaichi called a snap election and pledged to ⁠cut sales taxes on food, sending the 20-year bond yield nearly 20 basis point higher on concerns about the nation's strained finances.

Yields on super-long JGBs have been declining since Takaichi's Liberal Democratic Party swept to a landslide win in snap lower house elections on February 8.

"Market's worries about political instability have been removed after Takaichi's ‌big win, while the finance ministry's reduction in issuance of super-long dated bonds has been a support for investor appetite," Fujiwara said.

Foreigners ⁠have been aggressively buying Japan's super-long-dated bonds in recent months after a huge selloff of those bonds last year made their prices cheap.

Meanwhile, the 5-year JGB yield rose 1.5 bp to 1.635%, and the 10-year JGB yield rose 1 bp to 2.145%.

The 30-year bond yield fell 2.5 bps to 3.345%. The 40-year JGB yield fell 1.5 bps to 3.585%.