From Yahoo Finance: 2025-05-20 21:44:00

Yields on long-dated Japanese government bonds hit new records after a poor auction, raising concerns about upcoming debt sales. The Bank of Japan faces a challenge as it tries to taper debt purchases and normalize monetary policy. Political pressure for tax cuts and inflation concerns are also pushing yields higher.

The lack of buyers at the recent auction resulted in the worst outcome since 2012. Market demand for super-long bonds hinges on assurances of reduced bond issuance. The upcoming auctions for 30-year and 40-year bonds are expected to further weigh on sentiment as yields continue to rise.

The 20-year JGB yield reached its highest level since October 2000, while the 30-year yield hit a new record of 3.185% and the 40-year yield reached 3.635%. JGBs have been under pressure all year, with political parties calling for tax cuts and inflation adding to upward pressure on yields.

Above-target inflation and potential fiscal stimulus are driving yields up, but a mass exit from JGBs is unlikely. The Japanese government must be mindful of its commitment to return to primary balance, as rising inflation could reduce BOJ bond purchases.

The perfect storm seems to be brewing for the JGB market, with investors becoming more alert to rising yields. The benchmark 10-year JGB yield remained flat, while the two-year yield slid slightly. The market faces uncertainty as inflation rises and demand from price-sensitive buyers increases.

Read more: Japan’s super-long yields rise to all-time highs on fiscal, auction concerns