Japan to cut ultra-long bond supply by ¥100 billion in October, December auctions

Japan is cutting back on its ultra-long bond supply in October and December by ¥100 billion ($675 million) at each auction, trimming the amount offered to ¥250 billion from ¥350 billion, the Ministry of Finance announced after meeting with primary dealers on ￰0￱ decision affects bonds maturing between 15.5 and 39 years, which are part of the enhanced liquidity ￰1￱ is the second reduction this year targeting this specific end of the ￰2￱ October and December cuts follow continued caution from policymakers amid volatile demand for long-term ￰3￱ is also auctioning its 40-year bond on Thursday, with the results due at 12:35 ￰4￱ ￰5￱ Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, told reporters the reduction was “neutral to positive” and said, “I expect the sale of tomorrow’s 40-year bond to be absorbed without difficulty.” Finance ministry pushes up short-term bond issuance While Japan is scaling back the super-long end, it’s raising issuance on the other side of the ￰6￱ November, bond offerings with maturities longer than one year but shorter than five years will increase from ¥600 billion to ¥700 ￰7￱ said the change would likely be welcomed by domestic banks.

“The increased allocation for the 1-year to 5-year range is expected to attract demand from ￰8￱ is the most stable supply-demand zone, so excessive concern is unnecessary.” The ministry sent out a questionnaire in August to gather feedback from dealers before deciding to adjust the size of the ￰9￱ tweaks come as super-long yields remain near multi-year highs, and as the Bank of Japan continues to wind down its massive bond-buying ￰10￱ risk is also bleeding into the bond ￰11￱ Prime Minister Shigeru Ishiba announced plans to resign earlier this month, investors began speculating on the next government’s fiscal stance . “Going forward, whether politicians maintain fiscal discipline will become as important, if not more so, than the Ministry of Finance’s supply-demand measures,” said ￰12￱ investors load up on long bonds as curve flattens A surprising tilt by the Bank of Japan toward higher rates and fading fears about fiscal disaster have created an opening for foreign investors, who’ve been snapping up Japan’s super-long bonds for ￰13￱ strategy?

A flattening of the Japanese Government Bond (JGB) yield curve, where short-term rates rise and long-term rates ￰14￱ curve has been acting exactly how they hoped. Short-term yields jumped Monday to the highest since the global financial crisis, after two BOJ board members voted in favor of a rate hike on ￰15￱ the same time, yields on 20- and 30-year bonds ￰16￱ so-called twist flattening has been playing right into the hands of those betting against steep ￰17￱ overall direction of yields continued on Wednesday, with most sliding lower in sync with U. S. Treasuries.

Japan’s markets were closed on Tuesday for a national ￰18￱ around who will take Ishiba’s place has also calmed long-term rate ￰19￱ Ishiba’s resignation, Sanae Takaichi, a Liberal Democratic Party leadership contender, backed away from earlier calls for aggressive ￰20￱ at a press conference on Friday, she clarified she never opposed fiscal discipline, saying she would not immediately pursue any sales tax ￰21￱ helped bring down 30- and 40-year bond yields to one-month lows on ￰22￱ Ikeda, chief macro strategist at Nomura Securities, said, “I expect a stabilisation in 30-year ￰23￱ market was clearly misreading the probability and potential impact of a VAT cut.” He also noted earlier concerns about a possible ratings downgrade for Japan had eased.

“A while ago, people were actually talking about a potential downgrade for Japan, but the current situation doesn’t look at all like Japan is at risk of a rating cut,” he ￰24￱ on September 8, the day after Ishiba said he would step down, the 30-year yield spiked to a record 3.285%. But foreign traders didn’t flinch. They’ve remained net buyers of super-long JGBs for eight straight months through August, based on data from the Japan Securities Dealers ￰25￱ net purchases peaked in April at ¥2.3 trillion ($15.56 billion), compared to just ¥27 billion bought by life insurers, who have traditionally dominated this part of the ￰26￱ you're reading this, you’re already ￰27￱ there with our newsletter .