TOKYO: Japanese government bonds stabilized on Wednesday following the previous session's steep selloff, with the benchmark yield edging lower but the superlong zone modestly weakening.
The yield on the 40-year Japanese government bond rose to a 3 1/2-month high, a day after the government said it planned to issue more bonds in that maturity.
JGBs saw their worst sell-off in more than three years on Tuesday against a backdrop of fear that the Bank of Japan might reduce the pace of its aggressive government bond buying.
Finance Minister Taro Aso told reporters after the government's 13.5 trillion yen ($133.60 billion) stimulus package was announced on Tuesday that the ministry would consider 40-year debt in consultation with market participants.
Two people with direct knowledge of the matter said on Tuesday that the government will issue several hundred billion yen (several billion dollars) of 40-year-bonds as soon as September to help fund the new stimulus measures.
On Wednesday, the planned issuance weighed on the superlong zone, where the 20-year JGB yield added 1 basis point to 0.260 percent, while the 30-year JGB yield rose 3.5 basis points to 0.355 percent, its highest since May 19.
The 40-year JGB yield added 4.5 basis points in late afternoon trade to 0.420 percent, its highest since mid-April. Relatively illiquid, it had remained untraded for most of the session.
The benchmark 10-year JGB yield was down 2.5 basis points at minus 0.0900 percent, after spiking to a 4-1/2-month high of minus 0.025 percent on Tuesday. September 10-year futures added 0.26 point to end at 151.59.
The 5-year JGB yield was 2.5 basis points lower at minus 0.175 percent.
Last week, the central bank disappointed investors who expected it to include additional bond purchases in its easing steps.
The BOJ also said it would conduct "a comprehensive assessment" of the economy and the central bank's policy effects at its next meeting in September, leading some investors to speculate that a shift in its policy strategy could be ahead.
At least two members of the BOJ's board questioned its actions at their June meeting, minutes released on Wednesday showed, highlighting doubts about the sustainability of its policies.
"Today is quiet, but the market is jumpy, and more big moves are possible in thin conditions this month with many players away for their summer vacations," said a chief portfolio manager at an asset management firm in Tokyo.
The next major test of market sentiment will be the Ministry of Finance's auction of 800 billion yen ($7.92 billion) of 30-year JGBs on Aug. 9, to gauge the extent to which investors are factoring their longer-term fears into their short-term market strategies, he said.
The BOJ's September meeting "feels like a long time away," he added.
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