Japanese government bonds (JGBs) saw a notable rally on Tuesday following a rare move by the country’s Ministry of Finance (MoF) to solicit feedback from primary dealers and market participants on future bond issuance.
The initiative appears aimed at easing recent market volatility and addressing concerns about oversupply, particularly in the super long-dated segment of the bond market.
The yield on the 30-year JGB fell 0.19 percentage points to 2.85%, while the 10-year yield declined by 0.04 percentage points to 1.46%, signaling a surge in demand as bond prices rose. Yields on 40-year bonds also dropped sharply, falling about 25 basis points in one of the strongest rallies in recent weeks.
The MoF’s decision to reach out to primary brokers is viewed by analysts as a response to rising borrowing costs and weak demand in recent auctions — most notably, a poor 20-year bond auction last week. According to people familiar with the matter, the ministry’s questionnaire seemed designed to confirm a structural decline in demand for super long-term debt, which could pave the way for a reduction in future issuance of these maturities.
Bloomberg and Reuters reported that the MoF is now considering adjustments to its fiscal-year bond issuance strategy, including potential cuts to 20-, 30-, and 40-year bond offerings. While the total issuance for the year is expected to remain unchanged at ¥172.3 trillion ($1.21 trillion), any reduction in longer maturities would likely be offset by increased issuance of shorter-dated bonds.
The developments in Japan’s bond market had ripple effects across global financial markets. US Treasuries also rallied, with the 30-year Treasury yield falling below 5%, supported in part by expectations of reduced supply from Japan. The US dollar rose 0.3%, and S&P 500 futures advanced 1.3%, as investors responded to the improved outlook for bond markets globally.
Strategists noted that lower JGB issuance could shift demand to US and European debt markets, particularly among investors seeking long-duration assets. Michael Brown, a strategist at Pepperstone Group, said that a reduction in Japanese government bond supply could “force buyers into the Treasury complex.”
Bond yields also declined across Europe, aided by weaker-than-expected inflation data from France, further supporting global bond markets.
Japan’s bond market has faced growing strain due to a mix of diminishing demand from traditional buyers, such as life insurers, and concerns about rising public debt levels. With yields on long-dated JGBs reaching record highs in recent weeks, many analysts have called for a realignment of supply to better reflect investor appetite.
Societe Generale noted, “We’ve been arguing that something had to give to correct the supply-demand imbalance in long-end JGBs. The market is thinking it will be the MoF.”
The planned discussions with market participants — expected to conclude by mid- to late-June — will be key to shaping the MoF’s final decision on the composition of JGB issuance for the remainder of the fiscal year.
Reuters, Bloomberg, and the Financial Times contributed to this report.
