Investors showed up in force for Japan's ultra-long debt. The 40-year sale logged a bid-to-cover of 3.1, the most robust since 2020, versus 2.82 at the prior auction and a 12-month average at 2.67. Futures on Japanese government bonds were still up following the sale, while the 40-year yield was last at 4.23%.
Markets are wrestling with the idea that the Bank of Japan might be lagging behind the inflation fight after Governor Kazuo Ueda offered little detail on how quickly policy could tighten following a widely expected hike earlier this month. That uncertainty has stoked bets that officials may need to move more forcefully. Adding to that drumbeat, Kazuo Momma, a former BOJ executive director for monetary policy, told Bloomberg the bank might lift its policy rate again in October, which would mark a second consecutive monthly increase.
Speculation around fiscal plans is pressuring the super-long JGB sector.
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All of this is unfolding amid a worldwide downturn in bonds, headed by Treasuries. Yields across many maturities are hovering near multi-decade highs, and firmer oil prices are stoking inflation worries and reinforcing expectations for additional Federal Reserve rate hikes.
The 40-year note is a favorite of life insurers aiming to match their long-term liabilities, so this sale is a useful read on whether today's loftier yields are enticing those buyers to step back in.
Next up is Wednesday's two-year auction, which tends to be highly sensitive to the policy outlook. The two-year yield is nearing 2% as traders account for the possibility that tightening could speed up.
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