Japan's 40-Year Bond Yield Hits 18-Year High

Korea Economic Daily

Summary

It was reported that the highest bid yield for Japan's 40-year bonds reached 3.135%, the highest since 2007.
Investor demand weakened due to fiscal expansion concerns, resulting in yields exceeding market expectations.
The Ministry of Finance responded to decreased investor demand by reducing bond issuance and plans to discuss measures against rising yields.

The yield on Japan's 40-year government bonds auctioned by the Ministry of Finance on the 28th reached an annual 3.135%, the highest since the auction began in 2007. The weakening investor demand due to concerns over fiscal expansion, driven by political spending ahead of elections, is the cause.

Before the auction, the market expected the highest bid yield to be between 3.07% and 3.11%. The auction results exceeded the market's upper expectations, indicating weaker-than-expected investor demand. The bid-to-cover ratio, which is the amount bid divided by the amount sold, was 2.21 times. This is a decrease from the previous auction (2.92 times) and the lowest since July last year (2.20 times).

In the secondary market, ultra-long bond yields surged due to fiscal concerns. The 40-year bond yield hit a record high of 3.675% on the 22nd. Concerns are growing that the Japanese political sphere will issue 'deficit bonds' to cut consumption tax ahead of the Upper House elections in July.

The Ministry of Finance has reduced the issuance amount per auction to 500 billion yen this year, down by 200 billion yen from last year, considering investor demand. The Ministry plans to hold a meeting with primary dealers on the 20th of next month to discuss measures against the recent rise in bond yields.

Tokyo = Special Correspondent Kim Il-kyu black0419@hankyung.com