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(Bloomberg) -- Traders are jittery going into Japan’s auction of 30-year government bonds Tuesday for any signs of a deepening selloff in the securities.
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The ¥800 billion ($5.4 billion) offering comes as yields for that tenor climbed to the highest level in almost 25 years Monday, putting them in sight of an all-time high. That’s further steepening the yield curve and raising long-term borrowing costs at a time when life insurers are limiting purchases because of volatility and other investors are fretting about Japan ramping up defense spending under pressure from the Trump administration.
Concerns about demand for Japanese government bonds “appear to have been exacerbated by speculation that fiscal policy settings could end up being made even more expansionary,” Yurie Suzuki, a market analyst at Mizuho Securities Co., said in a report.
The increase in yields on Japanese bonds with longer maturities has been gathering pace since some major life insurers said they planned to cut their domestic bond holdings in the fiscal year that started in April.
Japan’s 30-year bond yielded 2.945% late morning in Tokyo, after touching 2.955% yesterday, just a few basis points short of an all-time high.
The jump in yields also came amid demand for riskier assets in global markets on news that the US and China will temporarily lower tariffs on each other’s products.
Read: Stocks Rise Across Asia on US-China Trade Truce: Markets Wrap
Suzuki at Mizuho said that there may be potential for current yield levels to attract buyers now that interest-rate volatility seems to be settling down. After years of bond yields being suppressed due to the Bank of Japan’s rock-bottom interest rates, the climb in Japanese 30-year rates is bringing them closer to equivalent levels for German bunds.
This increases the focus on the results of the auction of March 2055 bonds. Traders will be looking for any major changes in the bid-to-cover ratio - a key gauge of demand - or in the difference between the lowest and average accepted prices.
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