Japan's 30-year government bond auction Thursday will test investor appetite as a global selloff pushes long-dated yields to their highest levels in almost two decades.
A weak outcome at the sale could spill over into markets worldwide and exert further upward pressure on borrowing costs. In Japan, those pressures are compounded by concerns over Prime Minister Sanae Takaichi's expansionary fiscal agenda.
The 30-year yield fell 10 basis points to 4.065% ahead of Thursday's sale, moving further away from its highest level since the tenor was introduced in 1999. The decline followed gains in Treasuries overnight as oil prices retreated.
While a 10-year sale earlier this week passed smoothly, the 30-year tenor faces a tougher test given still-elevated global long-term yields and its greater sensitivity to fiscal concerns and supply-demand dynamics.
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"We expect weakish-to-benign results overall," Barclays Plc strategists including Ayao Ehara wrote in a note. "Yields are high due to last month's rise, and current levels are not far from fair value based on long-term drivers, but fiscal concerns remain a drag."
Japan's ministries have submitted record budget requests for the next fiscal year, intensifying scrutiny over how the additional spending will be financed and how much debt the government may need to sell. The concerns come as the benchmark 10-year JGB yield hit 3% for the first time in three decades.
Meanwhile, Bank of Japan Governor Kazuo Ueda hinted that an interest rate hike is possible at this month's policy meeting, saying a decision will be made with upside price risks in mind. That came after a slew of comments by US Treasury Secretary Scott Bessent pointing to the need for action.
A poor auction result could reverberate beyond Japan and amplify the selloff, market watchers say, potentially complicating efforts by US authorities to contain the rise in longer-maturity Treasury yields.
"JGBs were the anchor for global fixed income for a long time but now it has flipped," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities. "An extension to this selloff in JGBs could drive repricing of global fixed income."
The rise in 30-year yields could also "return the spotlight onto fiscal, not just monetary policy," Newnaha said, noting that Japan's debt-to-GDP ratio is now far higher than the last time 10-year JGB yields were around 3%.
There are reasons to expect buyers to emerge. The previous two 30-year auctions, both held with yields around 4%, recorded relatively high bid-to-cover ratios, while purchases of super-long bonds by life and non-life insurers have recently accelerated, according to Miki Den, senior rates strategist at SMBC Nikko Securities.
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Still, investors remain reluctant about aggressively adding duration while it is unclear where the rise in yields will end, said Den, who expects the auction to produce an average to somewhat weak result.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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