Japan’s 30-year bonds rise as weak auction adds to pressure to curtail issuance

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TOKYO (Reuters) – Japan’s 30-year government bond prices rose after the weakest auction of the securities in more than a year added to pressure on the Ministry of Finance to reduce supply of super-long notes.

The bid-to-cover ratio, a measure of demand that gauges the number of bids against the amount of securities on offer, fell to 2.921, the worst since December 2023, and was down from 3.074 at the prior sale in May.

The auction followed a weak outcome of the 40-year bond sale last week, and was a gauge for demand in so-called super-long bonds, whose yields hit record highs in May after heavy sell-offs.

“Investors bought the bonds as they thought the 30-year bonds had become cheap,” said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

“But fundamentally, the sentiment was supported by the expectations that the finance ministry may cut the issuance of super-long bonds,” he said.

The finance ministry could reduce the sale amounts as early as July, after hearing opinions from primary dealers at a meeting scheduled later this month, strategists said.

Expectations for the move rose after Reuters reported last week the Ministry of Finance is considering reducing its sales of super-long bonds.

The 30-year JGB yield trimmed losses soon after the auction, but fell as much as 7 basis points to 2.875%. It was last down 6 bps at 2.885%.

Bond yields move inversely to prices.

Keisuke Tsuruta, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, said some investors probably rushed to buy back the securities to cover their short positions.

“They needed to do so before bond prices rise further,” he said.

Yields across tenors fell, with the 10-year JGB yield slipping 4 bps to 1.46%.

The five-year yield fell 3.5 bps to 1.005%. The 20-year JGB yield fell 7 bps to 2.355%.

(Reporting by Junko Fujita, Kevin Buckland and Rocky Swift; Editing by Mrigank Dhaniwala)