Japan bond yields hold near multi-decade highs before 40-year auction

Japanese government bond yields neared multi-decade highs on Tuesday as inflation concerns weighed on global bond markets. The benchmark 10-year JGB yield climbed 0.5 basis point to 3.090%, hovering close to the 30-year peak of 3.115% achieved last week. Yields, which move inversely to bond prices, faced pressure from higher US Treasury yields, driven by surging oil prices and expectations of additional Federal Reserve rate hikes.

Japan's Ministry of Finance planned to sell approximately 300 billion yen in 40-year JGBs later in the day, followed by an auction of 2-year notes on Wednesday. Senior economist Takayuki Miyajima of Sony Financial Group noted that yields on the newly issued 40-year bonds were near record highs. Demand for these bonds was expected to come from life and non-life insurance companies, as well as foreign investors.

However, speculation about further Bank of Japan rate hikes, the possibility of a rising terminal rate, and concerns over fiscal expansion continued to weigh on the market.

The yield on the 40-year JGB, Japan's longest tenor, remained flat at 4.225%, while the 20-year yield and 30-year yield stayed steady at 3.915% and 4.170%, respectively. The two-year yield, most sensitive to Bank of Japan policy rates, held steady at 1.965%, while the five-year yield was unchanged at 2.420%, just below the record high reached on Monday.