A $2 Trillion Debt Deluge Is Set to Flatten Japan’s Yield Curve
- Government’s issuance increase is concentrated in short tenors
- Strong demand from insurers may drive super-long yields lower
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Staring at a record debt issuance this fiscal year, traders in Japan’s sovereign bond market are signaling that the $2 trillion deluge will flatten the nation’s yield curve.
That’s owing to two factors. First, the bulk of the increase in government debt sales is in shorter-maturities where waning foreign demand is already pressuring yields to rise, even after the Bank of Japan ramped up purchases. At the other end of the curve, rising investor demand for super-long bonds is seen driving yields lower in the sector.