Will super-long Japanese bonds decline


For quite a long time, wagering against Japanese government bonds was known as a misfortune making the exchange. Presently, there could be a lucky opening.

Rather than a significant part of the created world, Japan’s for quite some time dated yields are floating close to 16-month highs after the legislature hugely helped obligation gracefully to finance its upgrade spending. Melting away interest from key purchasers in addition to less national bank backing could make way for bonds to expand misfortunes.

All this raises the question if the time has come for betting against the sovereign debt of Japan, a company that is well-referred to as “the widow-maker” for losses it inflated to investors in the past. The resignation of Prime Minister Shinzo Abe will add to the uncertainty.

 Eiichiro Miura, general manager of the Nissay Asset Management, said: ‘Investors are still in disregard, even as the income rises due to concerns about decreasing demand and increased supplies. Demand issues will emerge as the government pension investment and other public funds will purchase fewer JGBs.’

Super-long JGBs have decreased 65 percent to 212.3 trillion yen (USD 2 trillion) for the year ended in March 2021 after Sovereign debt issuance increased. Returns on the JGBs for 30 years climbed for the first time since March last year above 0.6 percent in July and now floats close to that.

As supply increases, demand encourages the transfer of capital into foreign debt to raise returns. Although cutting its domestic bond allocation, the Government Pension Investment Fund is Japan’s largest investment vehicle and is growing its international bond allocation by 10 % to 25%.

The market may also lack a key support pillar because the Bank of Japan has not stepped up its regular operations to raise bonds purchases. After Governor Haruhiko Kuroda said in June that the super long Japanese returns were not solid in comparison to other nations, the yield curve is expected to steep.

The Bank of Japan retains its 10-year obligation return anchored by zero percent that saps trading in the short run.

Market players expect to see who will succeed Abe even if the effect on bonds is minimal. Yoshihide Suga, the long-standing assistant to the Prime Minister, is seen as the leader.

Naoya Oshikubo, a leading economist at Sumitomo Mitsui Trust Asset Management, said: ‘Supply and demand are slowing down because many of the super-long debt auctions and activities are being slowed down by summer holidays. By early September, however, if investors return home from holidays and the hurricane of super-long auctions ends, this shock will also likely lose momentum.’

“We’re going to see a progressive increase in spreads because of concerns about oversupply,” said Akio Kato, Mitsubishi’s general manager for strategic research and investment at UFJ Kokusai Asset Management Co. “The Government is always in danger of taking an extra fiscal stimulus package, which could increase debt issuance towards the end of this year.”


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