Yields on Japan's government's longest government bonds soared on Tuesday, increasing yields after debt auctions amid investors fearing a lack of demand.
The yield on 30-year bonds rose 3.14%, while the yield on 40-year bonds reached 3.61%, both rising as much as 0.17 percentage points. The rate of return is inversely proportional to the price.
At auctions, the gap between average and lowest prices (called Tails) is the largest since the late 1980s, with bond yields rising 15 basis points to 2.56%.
Tokyo rate traders said Tuesday's move reflects the growing impact on Japanese banks on bond purchases, with economic risks to U.S. trade tariffs and total Japanese debt exceeding more than 200% of annual GDP.
Investors are also concerned that if Japanese institutions and investors change their behavior and start moving funds home, the sell-off could hit assets globally.
Mike Riddell, fund manager at Fidelity Investments, said sharp yields are increasing “risk contagion and further weaknesses in the long term in the global bond market”, and they encouraged Japanese investors to bring cash home.
Mark Dowding, chief investment officer for fixed income at RBC Bluebay Asset Management, said Japan's Treasury "can say … should respond to market conditions by changing its issuance schedule and should stop issuing long-term bonds until volatility declines and market conditions are normalized."
Tuesday's yield leap was part of a review of Boj's dwindling scrutiny, which was after years of hyperfloating policies, trying to "normalize" monetary policy.
Central banks have been collecting opinions from market participants on the first year of reduction and the risks that may arise. In a summary of bank and brokers’ opinions published Tuesday shortly after the auction results, some participants said the shed should stop buying extra-long-date government bonds.
"The clear signs of mismatch in demand for long-term debt" may make Boj more cautious as to how it exits the bond market ahead of its main meeting in June," said Derek Halpenny, head of research at MUFG.
According to Société Générale, the private sector will have to absorb about 60 yen in additional debt for the fiscal year ending March 2026. Rate strategist Stephen Spratt noted where Japanese domestic demand will come from as life insurers recently announced a shift from the far-end buying strategy of the JGB curve.
Investors are also concerned about the unpopularity and political weakness of Prime Minister Shigeru Ishiba, who ruled through a fragile coalition.
A growing number of political analysts believe that Ishiba's approval rating is low and fails to reach any agreement with the Trump administration on tariffs, and they may become increasingly desperate ahead of the House of Lords elections scheduled for July. Analysts warn that the showdown could generate a promise of tax cuts and could have an impact on Japan's fiscal stance.