TOKYO: Japanese government bond yields fell across maturities on Thursday following an auction for the 20-year bond that saw improved demand compared to last month’s weak results.
The 20-year JGB yield dropped as much as 3 basis points (bps) to 1.405% after the auction, before settling higher at 1.43%. The 10-year JGB yield briefly fell to 0.695% but ticked back up to 0.705%.
“The first reaction among dealers here was relief” to a show of “decent demand” at the 20-year JGB auction, after fearing dismal results, said Shoki Omori, chief Japan desk strategist at Mizuho Securities.
Recent auctions for JGBs across maturities have seen weak sales as investors wait for an eventual rise in yields after the Bank of Japan (BOJ), so far an outlier among hawkish global central banks, tweaked its yield curve control policy late in July.
Japan’s Ministry of Finance said the yield at an auction of 20-year government bonds on Thursday averaged 1.433%, with the lowest accepted level at 1.437%.
The tail - the difference between the lowest bid and the average bid - was 0.07 yen, compared to 0.96 yen in August.
The tail at last month’s auction was the largest since 1987, signalling extremely low demand.
Questions remain, however, about how future auctions will play out.
With market players expecting a possible change to the BOJ’s monetary policy, it’s hard to buy at current yields when there is an anticipation of higher yields in the near future, said Omori.
The BOJ offered, in an effort to contain rising yields, one trillion yen ($6.80 billion) of five-year loans on Thursday to financial institutions to encourage banks to buy five-year notes.
Elsewhere on the superlong end, the 30-year JGB yield dropped 2 bps to 1.66%, completely reversing its sharp rise earlier in the week, but up from a low of 1.64%.
The two-year JGB yield held flat at 0.025%, while the five-year yield dipped 0.5 bps to 0.27%.