From Yahoo Finance: 2025-05-27 05:59:00

A lackluster auction for Japan’s longest-dated bonds did little to relieve fiscal deficit concerns, driving a surge in long-term yields. The Ministry of Finance sold 40-year bonds with tepid demand, followed by a rally in JGBs. Despite swift recovery, pressure remains for countries like the US and Japan to face higher borrowing costs.

JGB yields rose after the auction, with long-dated debt selling off globally due to concerns over inflation and government spending. Moody’s downgraded the US due to growing debt, while Japan’s debt ratio is double with the BOJ holding over half of all JGBs. Finance Minister Katsunobu Kato warned of higher rates imperiling Japan’s finances.

The weak auction adds pressure on the MOF to scale back super-long debt sales and for the BOJ to step in if necessary. Sources suggest a reduction in issuance of 20-, 30-, or 40-year JGBs, balanced by increased sales of shorter-dated debt. Attention now turns to how much the MOF will scale back issuance and its impact on the market.

The trigger for last week’s JGB sell-offs was an auction of 20-year debt with weak demand. JGBs are supported by domestic holdings, and concerns about long-term yields may be overblown. Analysts suggest a reduction in super-long supply to pre-COVID levels, signaling potential changes in the market.

Read more: Demand at Japan’s 40-year bond auction sinks as fiscal doubts prevail