Kevin Buckland

Tokyo (Reuters) Long-dated Japanese government bond yields grew further in Wednesday's three-week lows after demand for a closely watched 40-year bond auction fell to its lowest level since July.

The 40-year JGB yield jumped 9 basis points (BPS) to 3.375%, and as of 0514 GMT, its lowest since May 7 rebounded sharply from 3.285%.

The 30-year JGB yield rose to 2.93% from 2.83% on Tuesday, the lowest level since May 2.

In the last meeting, the 20-year yield bounced to an eight-week low of 2.31%.

The bid ratio for the total bid volume relative to the amount of securities provided fell to 2.21 from the first 40-year bond auctions in March.

After seeing signs of a high JGB yield in a positive sell-off last week, keep an eye on the signs of auctions, a record high.

Analysts said yields plummeted after Reuters reported that the Treasury Department was considering reducing extra-long bond issuances to relieve market pressure, which made bond prices too high, preventing buyers at Wednesday's auction.

"Soft auction results and market reactions may further adjust the size of the ultra-long auction for MOF," said Frances Cheung, head of FX and Rate Strategy at OCBC. "The 2-year or 5-year paper may increase with the 2-year or 5-year paper.

He said that Bank of Japan is unlikely to change its quantitative tightening plan that supports the bond market at this stage, but long-term yields will increase faster, and some shifts … cannot be ruled out,” he said.

BOJ Governor Kazuo Ueda said on Wednesday that central banks will pay attention to whether ultra-long yields have a ripple effect on shorter maturities, which has a greater impact on economic activity.

Japanese Finance Minister Katsunobu Kato reiterated on Wednesday that he is closely monitoring the development of the bond market in response to similar remarks the day before.

Last week, the 30-year and 40-year JGB yields reached 3.185% and 3.675%, respectively, while the 20-year yields reached 2.60%.

Yields have been steadily rising for weeks, but sales pressures have suddenly increased due to growing concerns about debt levels in major developed economies, especially Japan and the United States.

The 10-year JGB yield on Wednesday fell to 1.455% for the first time since the last meeting on May 16, up 6.5 bps to 1.525% on Wednesday.