Japan’s ultra-long government bond yields fell sharply on Tuesday after Reuters reported that the Ministry of Finance (MOF) may cut the amount of ultra-long Japanese Government Bonds (JGBs) it issues. The 30-year JGB yield dropped 18.5 basis points to 2.85%, having traded as high as 2.955% earlier in the day. The 20-year yield fell 16.5 basis points to 2.34%, down from an intraday peak of 2.44%. Meanwhile, the 40-year yield slid 24 basis points to 3.295%, after touching 3.435% at its session high.
Expectations of Government Intervention
Yields on these long-dated bonds had already begun to ease on expectations that the government would step in to curb the recent sell-off. The Reuters report intensified those expectations by suggesting the MOF will consider adjusting its bond issuance plan for the current fiscal year, potentially reducing ultra-long bond supply.
Background: Recent Surge in Yields
Last week, ultra-long JGB yields soared to record highs. A weak 20-year bond auction, political disputes over the government’s stimulus package, and speculation that the Bank of Japan might scale back its bond-buying program all contributed to the spike in yields.
Mixed Moves in Short-Term Yields
In contrast to the sharp falls in ultra-long yields, short-term JGB yields moved in mixed directions. The 10-year yield dipped 4 basis points to 1.465%, while the two-year yield inched up 1 basis point to 0.73%.
“Ultra-long bond yields continued to fall after the Reuters report, but short-term yields rose on concerns the Ministry of Finance could increase sales of such bonds,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
