All Japan Sovereigns Yield Below 0.3% as 40-Year Hits Record Low

Japan's 40-Year Bond Falls to Record Low
  • 40-year yield drops to 0.29%, 30-year falls to record 0.285%
  • BOJ targeting super-long maturities driving demand: JPMorgan

Japan’s 40-year bond yield fell to a record low, meaning all the nation’s sovereign bonds yield less than 0.3 percent as investors rush for securities with positive income.

The yield on the 1.4 percent government note maturing in March 2055 fell to 0.29 percent in Tokyo Wednesday from 0.415 percent on Friday when the bond had last traded, according to Japan Bond Trading Co. The decline spread to other longer-dated maturities, pushing 30- and 20-year yields to record lows of 0.285 percent and 0.245 percent respectively. Japan’s two-year yield also reached a record minus 0.265 percent.

Bond-buying operations for these zones by the Bank of Japan are also tightening market conditions as negative rates have pushed investors seeking positive yields into longer-dated debt. Yields on bonds with maturities as long as 10 years have gone negative since the BOJ announced in January that it would start charging lenders on some of their excess reserves held with the central bank. Governor Haruhiko Kuroda told lawmakers Wednesday he doesn’t think quantitative and qualitative easing is reaching its limit. The BOJ is due to announce its next policy decision on April 28.

‘No Choice’

“With yields up to 10 years sinking below zero, investors will look at zones on the curve with plus yields,” said Makoto Yamashita, a strategist for Japanese interest rates at Deutsche Bank AG’s securities unit in Tokyo. The 20-year auction scheduled for Thursday is expected to meet healthy demand, he said. “There are investors who have no choice but to buy.”

The investor base for the super-long maturities is more limited compared to shorter or benchmark zones. There is no problem with liquidity in the Japanese government bond market, Kuroda told lawmakers Wednesday.

“Strong demand for these bonds is strengthening downward pressure on their yields,” said Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co. There is also “speculation among some overseas investors of additional easing by the BOJ,” he said.

The benchmark 10-year yield matched a record low of minus 0.135 percent reached on March 18. A basis point is 0.01 percentage point.

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