Japan's 40-year treasury bond auction hit the weakest demand since July last year

The Zhitong Finance App learned that on Wednesday, Japan's 40-year treasury bond auction faced the weakest market demand since July 2024, or the risk of increasing fluctuations in the global bond market.

Judging from the immediate reaction of the market, the yield on 40-year treasury bonds was the same as before the auction, but the yield on 30-year treasury bonds jumped 11 basis points, showing a divergent trend. Stephen Spratt (Stephen Spratt), an interest rate strategist at Société Générale, pointed out: “Since the market has just experienced a round of yield shocks, no one expects this auction to receive strong demand.” He believes that this demand performance is “lackluster.”

Against the backdrop of global concerns that rising government spending could push the fiscal deficit into a dangerous zone, this auction became a key indicator for testing the demand for ultra-long-term treasury bonds. Within Japan, the auction is also seen as an important yardstick for measuring the needs of large institutional investors — these institutions have yet to fill the demand gap left by the Bank of Japan's reduction in debt purchases.

On Tuesday, ultra-long-term treasury bonds rebounded slightly due to market rumors that the Ministry of Finance might adjust the bond issuance plan. In the previous week, intense upward pressure on global borrowing costs had already pushed the yield on long-term treasury bonds of the US, Japan and other countries to rise across the board.

In this auction, the key indicator for measuring demand for 500 billion yen (about 3.5 billion US dollars) and 40-year treasury bonds due in March 2065 issued by Japan's Ministry of Finance was 2.21, far lower than 2.92 at the time of the March auction.

According to people familiar with the matter, the Ministry of Finance sent out a questionnaire to market participants on Monday evening to rarely solicit opinions on the bond issuance plan and current market conditions. This move is unusual both in terms of time and scope of consultation.

For the bond market, next month will be a key turning point: the Bank of Japan will hold a policy meeting from June 16 to 17, and the market anticipates that it may discuss further adjustments to the pace of debt purchase reduction; at the same time, the Ministry of Finance will refer to feedback from market participants to formulate the next debt issuance plan.