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2025-09-16 17:20:52
Steepening of the Japanese Government Bond (JGB) Yield Curve: Concerns and Market Gameplay on the Eve of the Auction. (1) The Japanese Government Bond (JGB) yield curve recently exhibited a bearish steepening pattern ahead of the upcoming 20-year JGB auction. Futures prices briefly stabilized, but then abruptly declined without clear news, surprising market participants. The 10-year JGB yield briefly fell to 1.585% from 1.59% last weekend, while the 20-year JGB yield rose to 2.67%, up 3 basis points from Friday. The 30-year JGB yield also rose to 3.25%, up 4 basis points from Friday, indicating a shift in market pricing for long-term bonds. (2) Trading data indicates that despite ample market liquidity, trading activity in the 20-year JGB was bidirectional, with regional accounts selling inactive 20-year bonds and pension funds buying active 20-year bonds. In addition, there is a "dumbbell" transaction that involves buying 10-year bonds, selling 20-year inactive bonds, and buying 20-year active bonds. At the close of Tokyo on Tuesday, the price of 10-year futures fell 0.12% to 136.52, and the price of 20-year futures fell 0.36% to 104.93. ⑶ In politics, the developments surrounding the election of the leadership of Japan's ruling party have also attracted attention. Some candidates have called for temporary tax cuts and an end to solar panel subsidies. Although market expectations for the Bank of Japan's recent interest rate hikes have cooled, with the probability of a 25 basis point rate hike in December falling from 64.5% last week to 62.5%, the steepening of the yield curve indicates that the market's views on future interest rate trends and economic prospects are undergoing subtle changes.
