Ultra-Long-Term Bonds Fall, US Interest Rates Rise, and Pressure to Refrain from Bidding for 30 Years: Increased Caution: Bloomberg

12/29/2020 Japan



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Ultra long-term bonds have fallen in the bond market. In addition to the rise in long-term interest rates in the United States due to overtime, selling pressure was exerted ahead of the 30-year government bond auction next week. The view was also expressed that there was a deep-rooted sense of caution about the rising yield curve.

  • Yields on newly issued 30-year bonds are 0.645%, 0.5 basis points (bps) higher than the day before, and yields on newly issued 40-year bonds are 0.69%, which is 1 bp. more than the day before, which are the highest levels in about 3 weeks.
  • Yield on newly issued 2-year bonds increased 0.5bp to minus 0.125%, the highest level in approximately 2 months
  • The closing price of long-term government bond futures in March was 151.95 yen, an increase of 1 yen. Taking control of the overnight trading flow, buying preceded, rising to 152.00 yen. After that, the top price gradually became heavier, and there were scenes where it returned to the 151.94 yen level.
  • Japan-China trade volume in March was 1.119.4 billion yen, the lowest level since October on a core contract month basis.

View of market participants

Makoto Suzuki Bond Senior Strategist at Okasan Securities

  • The bargain buying stance is unchanged, but with 10 and 30 years of bidding next week, we are also concerned about the trend in US long-term interest rates.
  • With the current economic downturn and conflicting expectations for a future economic recovery, concerns about rising interest rates in the United States have not dissipated and Japan is somewhat aware of the risks.
  • The Bank of Japan’s easing stance is clear, but there are signs that it will allow for some steepening of the yield curve, and if stocks are firm it will be difficult to chase higher.

Mizuho Securities Ryosuke Matsuzaki Market Analyst

  • The futures price range is small and calm, and I don’t think ultra-long-term bonds are selling out conspicuously, but I dare say that next week’s 30-year offering has been conscious.
  • It is also true that the current level of interest rates is too low and there is concern about the increase.
  • Even if it turns a bit bullish flat, it will return soon, but it is easy to react to increasingly steep materials, such as rising interest rates abroad.

Bank of Japan operating policy in January

  • Purchase amount range for the remaining 1-3 yearsReduction
  • Mr. Suzuki of Okasan Securities
    • It appears that the purchase amount was relatively large and demand from foreign investors has recovered, but you may be thinking of normalizing the curve in the future.
  • Mr. Matsuzaki of Mizuho Securities
    • I was surprised by the drawdown at the moment, but there are some stocks that are tight so it’s only part of the supply and demand adjustment so it may not make a lot of sense.

background

Yield on newly issued government bonds (at 3:00 pm)

2 year voucher 5 year voucher 10 year bond 20-year bond 30-year bond 40 year bond
-0.125 ％ -0.115 ％ 0.015 ％ 0.395 ％ 0.645 ％ 0.690 ％
The day before yesterday + 0.5 bp Flat Flat Flat + 0.5 bp + 1.0 bp
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