(Bloomberg) — Longer-dated Japanese government bonds fell on Thursday, even after solid demand at a 30-year auction, as rising global yields continued to weigh on the market.
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The 30-year yield climbed as much as 10 basis points to 3.915%, the highest since the tenor’s 1999 debut. Rates also advanced to multi-decade highs for 20- and 40-year debt, increasing 8 basis points and 7.5 basis points, respectively.
The selloff came as Treasury yields climbed after US data this week reinforced signs of accelerating inflation, prompting traders to boost bets on Federal Reserve rate hikes. Longer-maturity UK gilts have also fallen as pressure mounts on the prime minister to resign, adding to weakness across major bond markets, including JGBs.
Meanwhile, inflation pressure remains as oil prices stay elevated, with prospects for an end to the Iran conflict still in limbo as US President Donald Trump visits China for a high-stakes summit.
Bank of Japan board member Kazuyuki Masu called for interest rates to be increased as soon as possible provided there is no indication of the economy running into trouble, citing more enduring inflationary risks from the war in Iran.
The JGB market’s swing “seems to be mainly driven by the combination of Masu’s hawkish comments and sentiment spillover from the UK Gilt market’s volatility,” said Homin Lee, senior macro strategist at Lombard Odier. Global bond markets’ gyrations are probably driving a shift in term premium, he added.
The surge in yields came even as Thursday’s auction drew stronger demand than the 12-month average. The bid-to-cover ratio rose to 3.49, compared with 3.12 at the previous sale, and the 12-month average of 3.37.
Notably, the tail, or the gap between average and lowest-accepted prices, widened to 0.22 from 0.18 last month.
“While the bid-to-cover ratio exceeded the average of the past 12 months, the results were considered somewhat disappointing, given the higher-than-expected yields and the widening tail,” said Ryutaro Kimura, senior fixed-income strategist at BNP Paribas Asset Management.
The yen has also resumed weakening against the dollar despite multiple rounds of intervention by Japanese authorities, as fundamental pressures and Middle East tensions persist. That has added to inflation risks and brought another headwind to bonds.