Japan's government bond yield curve steepens, trading remains subdued ahead of auction

智通财经2026/10/05 10:06

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(1) On Monday, Japan's government bond yield curve steepened, with subdued market activity ahead of this week's 10-year and 30-year auctions. (2) Reports indicate that the Bank of Japan may confirm that underlying inflation has reached its 2% target. (3) The 10-year benchmark yield briefly rose 1 basis point from last week's close to 3.11%, then retreated to around 3.085% on bargain buying, while the 5-year yield fell to about 2.365%. (4) The ultra-long end failed to follow the downward move: the 30-year yield on the most actively traded security rose about 2.5 basis points to 4.23%, and the 40-year yield increased approximately 3.9 basis points on the electronic platform. (5) The 2-year yield fell 1 basis point to around 1.905%, with curve steepening becoming more apparent after 9:45 a.m. (6) In the afternoon session, government bond futures fluctuated within a narrow range, with steepening pressure persisting, as the 10-year yield rebounded slightly to around 3.085% and the 30-year moved up to 4.23%. (7) Today's curve steepening suggests that investors are more cautious about Thursday’s 30-year auction than Tuesday’s 10-year issuance, with some Japanese securities firm representatives hoping the 10-year yield rebounds to levels corresponding to today’s decline before bidding closes, to ensure a stable auction. (8) Japan's Finance Minister and Prime Minister both attempted to avoid panic in the bond market. The Finance Minister stated that the Prime Minister is not pursuing a reflation policy, and in his policy address, the Prime Minister emphasized that deficit-financed bonds would not be relied on to fund the planned consumption tax cut. (9) However, most market participants believe the Prime Minister’s economic adviser leans toward a reflation stance, making it difficult to persuade the market. (10) The Bank of Japan Governor previously stated that underlying inflation is approaching 2%, that stabilizing it at this level is very important, and that the risk of overshooting is rising. (11) Overnight index swaps show about a 12% probability of a 25-basis-point rate hike at the October meeting, down from 15% last Friday, and about a 90.5% probability at the December meeting, down from the previous 96%. (12) The Nikkei index rose about 2.4% to 69,946.86 points, with USD/JPY quoted at 157.77.

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