Super-Long Japanese Yields May Have Peaked Amid Ample Liquidity

(Bloomberg) -- Japan’s super-long yields may have peaked in July despite a jump in bond supply, as ample liquidity lures buyers to the market.

In the past month, the 30-year sovereign yield has failed to breach the 17-month high of 0.645% reached on July 2, which could signal limited upside. The sale of 900 billion yen ($8.5 billion) of 30-year debt this week, which capped a four-week stretch of super-long issuance, recorded decent demand.

This may put paid to speculation that super-long yields are poised to rise further after sovereign bond issuance climbed 65% to 212.3 trillion yen for the fiscal year ending March 2021.

“With excessive liquidity in markets now, all assets are a buy and yield-hunting need is tremendous,” said Koichi Sugisaki, a strategist at Morgan Stanley MUFG Securities Co. in Tokyo. “A big rise in yields is unlikely even with issuance concerns.”

The 30-year JGB yield is likely to trade in a core range of 0.55% to 0.65%, Sugisaki said. He noted that life insurers bought a net 622 billion yen of super-long JGBs in July when the 30-year yield climbed above 0.6%.

©2020 Bloomberg L.P.