Japan’s 20-year bond yield drops after record auction demand

Japan’s 20-year government bond yield dropped sharply on Tuesday, October 20, after an auction attracted the strongest demand on record by its bid-to-cover ratio, Economic Times Markets reported. The yield fell as much as 6 basis points to 3.71%, its lowest since September 9, before standing at 3.725%, down 4.5 basis points in the report’s latest snapshot.

Bids totalled 5.84 times the amount of bonds sold, compared with 4.01 times at the previous month’s auction. That was the highest ratio since Japan began selling 20-year bonds in 1987. The ratio measures the value of bids relative to the amount sold; bond yields fall when prices rise.

Rate expectations support longer maturities

Takashi Fujiwara, lead fund manager at Resona Asset Management, attributed support for super-long bonds to growing expectations that the Bank of Japan could finish raising interest rates as early as March 2027. He said some investors expected inflation expectations to remain stable, reducing the need for aggressive rate increases. These were market expectations, not an announced central-bank commitment.

Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, interpreted the auction result as a sign that many investors anticipated a bond-market rebound. He linked the shift towards lower-risk investments to a mass protest in France and selling in CoreWeave shares and bonds.

The decline extended to longer maturities: the 30-year yield fell 5 basis points to 3.935%, while the 40-year yield dropped 6 basis points to 4.05%. But the move was not uniform across the market. The benchmark 10-year yield rose 1.5 basis points to 2.920%.