JGB Yields Rise after Weak Demand at 20-year Bond Auction

REUTERS/Kim Kyung-Hoon
Japan’s long-term government bonds level and Japanese Yen rate against the U.S. dollar are seen through rain drops on an electric board outside a brokerage in Tokyo, Japan January 16, 2023.

TOKYO (Reuters) – Japanese government bond (JGB) yields ticked up on Tuesday as investors reacted to weaker-than-expected demand at an auction for the superlong bond.

The 20-year JGB yield JP20YTN=JBTC rose as much as 6 basis points (bps) to 1.59%, its highest since Oct. 6, following an announcement of the auction results. It last sat at 1.575%.

The tail – a measure of demand that subtracts the average and cut-off prices – at Tuesday’s auction was 0.53 yen, compared with 0.07 yen at last month’s auction. A larger tail signals weaker demand.

The 10-year JGB yield JP10YTN=JBTC was up 3 bps at 0.78%, while benchmark 10-year JGB futures 2JGBv1 fell 0.27 yen to 145.2 yen in the Asian afternoon.

The results were “way weaker” than even market estimates going into the auction, said Shoki Omori, chief Japan desk strategist at Mizuho Securities.

“Investors clearly did not want go long” on the 20-year JGB auction after poor demand at an auction for the 30-year JGB earlier in the month, he said.

Demand at the 30-year JGB auction was the lowest since 2019, and that for the 20-year paper at an auction in August was the weakest in decades.

Some investors were seen buying bonds ahead of the auction on Tuesday, likely due to increased geopolitical uncertainties, Omori said.

Market participants have been attempting to size up rapidly changing market dynamics, including the continuing conflict in Gaza.

Elsewhere on the superlong end, the 30-year JGB yield JP30YTN=JBTC stood at 1.745%, after rising to a session high of 1.76%.

The 40-year JGB yield JP40YTN=JBTC was up as much as 6.5 bps post-auction before falling slightly to 2.02%.

U.S. Treasury yields, which Japanese government yields tend to mirror, also rose overnight.

On the short-end, the two-year JGB yield JP2YTN=JBTC sat 1 bp higher at 0.05%, and the five-year yield JP5YTN=JBTC edged 1.5 bps higher to 0.325%.