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2025-09-16 17:22:36
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, a "dumbbell" trade has emerged, involving buying 10-year bonds, selling inactive 20-year bonds, and buying active 20-year bonds. At the close of trading in Tokyo on Tuesday, 10-year futures fell 0.12% to 136.52, while 20-year futures fell 0.36% to 104.93. Politically, developments surrounding Japan's ruling party leadership election are also attracting attention. Some candidates have called for temporary tax cuts and an end to solar panel subsidies. Although market expectations for a near-term Bank of Japan rate hike have cooled somewhat, with the probability of a 25 basis point increase in December falling to 62.5% from 64.5% last week, the steepening of the yield curve suggests a subtle shift in market sentiment regarding future interest rate trends and the economic outlook.
