Japan 40-year bond auction sees weakest demand ratio since 2011

[TOKYO] Japan’s 40-year government bond auction saw its weakest demand since 2011 amid concerns over government spending and after the US and Japan reached a trade deal.

The bid-to-cover ratio, a measure of demand, came in at 2.127, compared to 2.214 at the previous auction.

The sale comes after Japanese Prime Minister Shigeru Ishiba’s ruling coalition failed to win a majority in the upper house at a vote on Sunday (Jul 20). Fiscal concerns are ramping up after local media reports on Wednesday said that the nation’s leader will announce his resignation in August.

Bond yields on Wednesday rose across the curve following US President Donald Trump’s announcement of a 15 per cent tariff on imports from Japan. The benchmark Topix and Nikkei 225 share gauges both rallied more than 3 per cent as market sentiment improved.

Yields have traded recently at multi-year highs at a time when the Bank of Japan (BOJ) has been gradually paring back its massive bond purchases. The Ministry of Finance reduced the issuance of longer-maturity bonds from this month to calm the volatility in the bond market.

BOJ deputy governor Shinichi Uchida indicated there’s little immediate need to raise the benchmark interest rate in a speech delivered shortly after Trump’s announcement. Overnight index swaps show a more than 80 per cent chance of a rate hike by the end of the year on Wednesday, compared to 59 per cent a day earlier. BLOOMBERG