Japan’s 30-Year Bond Auction Sees Weakest Demand Since 2023, Raising Issuance Concerns

Japan’s 30-year government bond auction delivered its weakest bid-to-cover ratio since 2023, highlighting growing discomfort among institutional investors with ultra-long-dated sovereign debt. The auction recorded a bid-to-cover ratio of 2.92, well below the 12-month average of 3.39 and the previous auction’s 3.07, signaling a stark drop in demand. The low point in appetite follows similarly disappointing results in recent 20-year and 40-year bond sales, further underscoring concerns over long-duration issuance.

Highlights:

• 30-year bond auction bid-to-cover ratio falls to 2.92 vs. 12-month average of 3.39.

• Yield dropped to 2.92% from May’s peak of 3.185%, highest since issuance began.

• Weak demand follows poor results in recent 20-year and 40-year bond auctions.

Aging Demographics Reshape Demand for Long-Term Government Debt

Portfolio managers attribute the shift to demographic trends that have fundamentally altered the structure of domestic bond demand. Japan’s aging society has led to reduced bond purchases from traditional long-term investors like life insurers and pension funds, who no longer have a pressing need to lock in assets maturing over three decades. The absence of these historically reliable buyers is forcing the government to reconsider its bond issuance strategy.

Highlights:

• Aging population reduces long-term bond demand from insurers and pension funds.

• Traditional domestic buyers no longer require ultra-long-duration assets.

• Investor base thinning for maturities beyond 30 years.

Auction Metrics Raise Red Flags for Fiscal Planners

At Thursday’s sale, the lowest accepted price was 91.45, falling short of the 92 forecast in Bloomberg’s market survey. The “tail” — the spread between average and lowest-accepted prices — widened to 0.49 from 0.30 in the prior auction, suggesting increased pricing uncertainty. Such indicators are closely monitored by the finance ministry and could influence near-term decisions on debt management.

Highlights:

• Lowest price of 91.45 below market expectation of 92.

• Tail widened to 0.49 vs. 0.30 in the previous auction, indicating pricing stress.

• Metrics suggest market discomfort with long-dated JGBs.

Japan’s Finance Ministry and BOJ Weigh Issuance Strategy Changes

In response to the weakened demand and increasing yield volatility, Japan’s Ministry of Finance recently distributed a market survey to gauge investor sentiment and preferences. A draft of the upcoming fiscal policy plan hints at a shift toward promoting stronger domestic participation in the government bond market. Meanwhile, Bank of Japan Governor Kazuo Ueda has hinted that the central bank may further scale down bond purchases in the next fiscal year. A review of the BOJ’s bond-buying program is slated for the June 16–17 board meeting.

Highlights:

• Finance ministry survey seeks feedback on long-term bond issuance strategy.

• Fiscal policy draft calls for greater domestic bond absorption.

• BOJ likely to reduce bond purchases; formal review expected mid-June.

Calls to Cease Issuance Beyond 30 Years Grow Louder

As Japan’s fiscal deficit continues to expand and the bond market contends with growing instability, pressure is mounting on the government to stop issuing bonds with maturities longer than 30 years. Kevin Zhao, head of global sovereign and currency at UBS Asset Management, emphasized that curbing long-term issuance would help stabilize the market and reduce investor uncertainty at the long end of the yield curve.

Highlights:

• Market experts urge suspension of bonds with maturities beyond 30 years.

• Calls to address volatility and investor aversion to ultra-long JGBs intensify.

• Fiscal deficit pressures add urgency to overhaul bond issuance strategy.