BY TAKAYA YAMAGUCHI
TOKYO — Japan is considering buying back some super-long government bonds issued in the past at low interest rates, two sources with direct knowledge of the plan said on Monday, underscoring its focus on reining in any abrupt rise in bond yields.
The move would come on top of an expected government plan to trim issuance of super-long bonds — such as those with 20-, 30- or 40-yearmaturities — in the wake of sharp rises in their yields.
The Ministry of Finance, which oversees the government’s debt issuance plan, will reach a final decision after holding meetings with bond market participants on June 20 and June 23, the sources said.
Buying back super-long Japanese government bonds (JGB) would require budget approval and will likely take time, they said.
Yields on super-long JGBs rose to record levels last month due to dwindling demand from traditional buyers such as life insurers, and global market jitters over steadily rising debt levels.
In Japan, super-long bonds were also sold off as Prime Minister Shigeru Ishiba faced political pressure for tax cuts and big spending ahead of an upper house poll in July, policies that could add to the country’s already huge public debt.
The JGB market distortion has turned investors’ attention to whether the MOF, which oversees debt issuance, and Bank of Japan could take measures to tame rises in super-long yields.
Sources have told Reuters the BOJ will likely maintain its current bond-taper programme running through March, but consider slowing the pace of tapering from next fiscal year.
Japanese government bond yields rose on Monday, buoyed by an advance for US Treasury yields after resilient labour market data on Friday saw traders pare back bets for a near-term Federal Reserve interest rate cut.
The 10-year JGB yield rose 1.5 basis points (bps) to 1.470 percent.
The two-year JGB yield also added 1.5 bps to 0.775 percent, while the five-year yield climbed 2 bps to 1.030 percent.
That’s after 10-year Treasury yields jumped 11.5 bps on Friday as a rise in non-farm payrolls for May and gains for wages topped economist estimates. Traders now see 63 percent odds of a Fed cut by September, down from 74 percent before the jobs data.
Benchmark 10-year JGB futures fell 0.18 yen to 139.17 yen. Yields rise when bond prices fall.
The 20-year JGB yield added 2.5 bps to 2.355 percent, and 30-year yield advanced 3.5 bps to 2.910 percent.
For those super-long bonds, yields remained a long way from last month’s peaks: a quarter-century high of 2.600 percent for 20-year JGBs and a record 3.185 percent for 30-year JGBs.
