Japan recently completed the auction of its 40-year government bond, with strong demand reflected in a bid-to-cover ratio of 2.76, surpassing the previous 2.585 and the 12-month average of 2.53. This signals continued investor appetite for long-dated Japanese sovereign debt.
Yields Retreat After Auction
Following the auction, 40-year bond prices rose while yields declined by 3.5 basis points to 3.9%. This provided temporary relief after yields had surged to record highs earlier in the week. The spike, which pushed the 40-year yield above 4.215%, was triggered by uncertainty surrounding a proposed two-year food tax exemption, a policy initiative that roiled markets.
While yields have since eased, investor caution remains high. The market is still grappling with uncertainty around fiscal policy and the broader political landscape.
- Political instability weighs on sentiment
- Fiscal outlook remains unclear
- Yields could see further volatility
With a general election scheduled for February 8, traders are bracing for more turbulence ahead. The Bank of Japan also faces increasing pressure to manage its yield curve control framework amid rising market stress.