Bond yields, particularly on the long end, have surged around the world in recent weeks as concerns mount over fiscal deficits.
JGBs rallied sharply in the afternoon on Tuesday after Reuters reported that the Ministry of Finance may tweak its issuance plan to reduce issuance of super-long bonds.
Long-dated debt has sold off on concerns tax cuts and a chaotic roll-out of sweeping tariffs by U.S. President Donald Trump will stoke inflation and impel governments to spend more. That has driven up the term premium - the extra yield offered to buyers in exchange for locking up their money in longer-dated securities.
But the situation is more precarious in Japan, where the debt ratio is double that amount and the central bank has slashed its bond buying to support the economy.
What sets Japan apart from other markets is that its finance chiefs are directly addressing the dramatic runup in longer yields and acting to prop them up, said Shoki Omori, chief desk strategist at Mizuho Securities.
A reduction in issuance of 20-, 30- or 40-year JGBs would be counterbalanced by increased sales of shorter-dated debt, sources told Reuters, meaning overall issuance for the fiscal year would remain at 172.3 trillion yen.
“A smaller-than-expected reduction could be a cue for a sell-off,“ Kadota said.
The trigger for last week's sell-offs in JGBs was an auction of 20-year debt that saw the tail - the difference between the lowest and average accepted prices - reach its widest since 1987, signalling weak demand.
Mizuho's Omori said the auction is likely to go well due to speculation over MOF issuance tweaks, but it may be a short-term fix.
“There’s not going to be many other catalysts for long-term yield support,“ he said.
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