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A global sell-off of government debt extended to Tokyo on Wednesday, with yields on Japan’s long-dated bonds hitting record levels.
Yields on 30-year Japanese government bonds climbed to as much as 3.28 per cent, an all-time high, as selling pressure mounted. Twenty-year yields reached 2.69 per cent at one point in the morning, their highest since 1999. Yields move inversely to prices.
The moves in Japanese debt reflect broadening investor concerns around countries with substantial piles of government debt. They follow a surge in 30-year UK gilt yields to their highest level since 1998 on Tuesday, while French 10-year bond yields rose 0.05 percentage points to 3.58 per cent amid concerns over government stability.
Yields on 30-year US Treasuries rose 0.02 percentage points to 4.98 per cent on Wednesday in Asia trading, while 10-year yields rose by the same margin to 4.28 per cent.
In Japan, investors have also reacted to concern that Prime Minister Shigeru Ishiba might soon be forced to step down following a review of his ruling Liberal Democratic party’s losses in upper house elections in July.
Traders in Tokyo said the potential ousting of Ishiba raised the possibility that a new prime minister would emerge with a more openly populist agenda, including plans for higher government spending and pressure on the Bank of Japan to put a stop on interest rate rises.
A 30-year bond auction is due in Japan on Thursday. Buying interest in these auctions has been muted since May, as Japanese life insurers and other institutional investors seek to invest in shorter-maturity sovereign debt.
The LDP review published on Tuesday did not directly identify Ishiba as the cause of the party’s losses but triggered the resignations of several senior members and opens the way to an internal LDP process that would replace Ishiba with another leader.
Tobias Harris, a political analyst at Foresight Japan, said the review increased the likelihood that the party would oust Ishiba from office.
Stephen Spratt, Asia-Pacific rates strategist at Société Générale, said markets were also considering the possibility of Ishiba offering generous government spending packages to win back dissenters in his party.
“Either way, the market thinks things will be looser on the fiscal side, and the market does not want to see more fiscal spending at this time,” said Spratt.
Additional reporting by Arjun Neil Alim in Hong Kong
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