Japan’s 30-year bond auction saw the weakest demand since 2023, ramping up pressure on the government to adjust issuance.
The bid-to-cover ratio at the sale was 2.92, compared with a 12-month average of 3.39. The ratio for the previous auction was 3.07. The 30-year bond pared an earlier gain with the yield falling 2.5 basis points to 2.92% ahead of Thursday’s sale, down from 3.185% last month, the highest level since it was first sold.
The lowest price was 91.45, compared with 92 in a Bloomberg survey. Market players often focus on a survey estimating the lowest accepted price of the bond, which comes out in the lead-up to the auction result. They then compare that with the actual cut-off price to gauge the success of the sale. The tail, or the gap between average and lowest-accepted prices, was 0.49, versus 0.30 for the previous sale.
Disappointing demand at sales of 20-year and 40-year bonds late last month exposed investor concern about a lack of appetite for longer tenors, sending a fresh warning to the government that it may need to rethink issuance plans. Although a 10-year auction this week brought some relief for the Japanese market, expanding deficits are putting longer bonds under pressure worldwide.
Following the jump in long-term yields, Japan’s finance ministry sent out a questionnaire to market participants that asked for their views on issuance and the current market situation, signaling that it may be preparing to adjust debt issuance.
A draft of the government’s annual fiscal policy plan seen by Bloomberg also emphasized the need for more domestic buying of Japanese government bonds.
To calm volatility in the bond market, the government needs to stop issuing debt with maturities above 30 years, said Kevin Zhao, head of global sovereign and currency at UBS Asset Management.
Demand for the tenor is dwindling due to demographic shifts in the country’s aging society as Japanese life insurers and pension funds no longer need too stock up on bonds maturing in 30 years or longer like they have in the past decades, said the veteran portfolio manager.
Bank of Japan Governor Kazuo Ueda hinted at the likelihood that the central bank will continue to slow the pace of government bond purchases next fiscal year. The BOJ will review its bond buying plans at its board meeting on June 16-17.
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