Japanese Bonds Rise as 30-Year Auction Brings Some Relief

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Japanese Bonds Rise as 30-Year Auction Brings Some Relief.

treasuries & bonds :: 2025-06-05 :: source - bloomberg

By Mia Glass

(Bloomberg) -- Japanese government bonds rose after an auction of 30-year debt wasn’t as bad as many investors had feared.

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While immediate market reaction indicated relief — yields edged lower after the sale — the bid-to-cover ratio of 2.92 at Thursday’s offering points to a general lack of appetite for longer-maturity debt that is afflicting markets from Japan to Europe and the US.

Several auctions of longer tenor Japanese bonds in recent weeks have met shaky demand, with the market flashing a warning that authorities in Tokyo may need to reconsider their issuance plans. The Ministry of Finance is set to meet with primary dealers on June 20, according to people familiar with the matter, just days after the Bank of Japan reviews its bond buying plans.

“The forward-looking attitude that the MOF is moving toward reducing issuance helped out the auction results,” said Takashi Fujiwara, chief fund manager at Resona Asset Management Co. in Tokyo. “On the other hand, I don’t think that supply and demand concerns for super-long bonds have peaked yet.”

The 30-year bond extended an earlier gain, with the yield falling seven basis points to 2.875% at one point. The 40-year rate dropped as much as 8.5 basis points to 3.055%.

“With all this talk of issuance cuts, investors see little urgency in establishing large positions in super-long bonds until the Ministry of Finance clarifies its next steps,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. “The market appears poised for a period of watchful waiting.”

Omori added that it seems some people failed to cover short positions going into the auction.

What Bloomberg Strategists Say...

This price action suggests bond traders were using the contract to pre-hedge the debt sale in case it went as badly as the recent 20-year sale.

Traders will be relieved there are not any more long-term auctions to navigate before the BOJ meeting in less than two weeks.

— Mark Cranfield, Markets Live strategist. Read more on MLIV.

Japanese bonds have seen some relief this week after decent demand at a sale of 10-year notes on Tuesday, and after a rally in the US Treasury market Thursday on soft US economic data.

Yields on 30-year Japanese bonds have come down from 3.185% last month, the most since inception. There are indications that the recent rout has pushed rates to attractive levels for some buyers.

Investors can pick up bargains in Japanese government bonds despite a wave of recent selling that has spread volatility throughout global debt markets, according to Pacific Investment Management Co.

Still, the auction results show how the bond market is concerned that the government’s borrowing plans may not be sustainable as the central bank reduces its footprint in the market.

Governor Kazuo Ueda hinted at the likelihood that the Bank of Japan will continue to slow the pace of government bond purchases next fiscal year, meaning that the board meeting on June 16-17 will be closely watched.

Miki Den, a senior rates strategist at SMBC Nikko Securities Inc. in Tokyo, said “supply-demand concerns will linger” until the MOF’s meeting with primary dealers a few days later. “I expect super-long term yields to remain flat or rise slightly,” he said.

The bid-to-cover ratio at the sale was lower than 3.07 the previous month, and the 12-month average of 3.39. The lowest price was below that of a Bloomberg survey.

“The auction wasn’t good, but within the acceptable range,” said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management Co.

The tail, or the gap between average and lowest-accepted prices, came in at 0.49, indicating weaker demand than at the prior auction. However, it was still shorter than at April’s bond sale, which was seen as positive by the market, said Koguchi.

--With assistance from Masahiro Hidaka, Masaki Kondo and Hidenori Yamanaka.

(Updates with comment in fourth paragraph.)