(Bloomberg) -- Japan’s first sale of government bonds since the ruling political coalition crumbled drew firm demand as higher yields attracted investors, bringing more comfort to global debt markets.

A key gauge of demand at the 20-year auction Wednesday was above the 12-month average for that tenor. The sale follows two smooth offerings last week, pointing to an easing funding environment in Japan even amid political turmoil. Long-dated bonds held gains after the result, with 20-year yields dropping 3 basis points to 2.685% and 40-year yields falling 6.5 basis points to 3.435%.

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The Ministry of Finance’s latest debt offering came after French and US bond markets showed signs of strength Tuesday. Japan’s 20-year yield has been hovering near the highest since 1999 as fund managers globally have been demanding ever-greater premiums to lend money with political turmoil overshadowing central bank policy as a driver.

“While caution over fiscal expansion is still there, attractive yield levels and the view that there won’t be an increase in 20-year bond issuance added to a sense of security,” said Miki Den, senior rates strategist at SMBC Nikko Securities Inc.

The auction was the first since the ruling coalition collapsed, making newly elected Liberal Democratic Party leader Sanae Takaichi’s prospects of becoming prime minister less certain. The rupture in the 26-year alliance since then has highlighted the fragility of the LDP’s grip on power.

Read: Japan Opposition Weighs Alliance That Could Oust Long-Ruling LDP

The bid-to-cover ratio came in at 3.56, compared with 4 at the previous auction and an average of 3.25 over the past year.

“I hope that this solid auction result will help ease the upward pressure on super-long yields stemming from political instability risks,” said Ryutaro Kimura, a senior fixed-income strategist at AXA Investment Managers.

That said, “the lingering risk of an early general election makes political stabilization unlikely,” and it’s uncertain if super-long Japanese bond yields will fall further, he added.

There will likely be a steady flow of political catalysts for the market over the coming days as the LDP, Komeito and other parties mull potential alliances and who to support as premier. The heads of Japan’s main opposition parties are expected to discuss Wednesday whether they can choose a candidate. Lawmakers may also confirm that an extraordinary parliament session will take place on Oct. 21 to vote on a prime minister.

With no sales of longer-tenor Japanese bonds slated for the coming weeks, the auction showed that sentiment has firmed. The tail, or the spread between the average and lowest-accepted prices, was slightly higher than in September, but still below most of the 20-year bond sales this year.

What Bloomberg strategists say:

The 20-year JGB sale passed off smoothly with a bid-to-cover ratio that beat the one-year average and a tail of just 13 ticks. Traders don’t need to prepare for another long-dated debt sale until the 30-year in four weeks’ time.

That will give bond investors more reason to focus on Japan’s steep yield curve, which is set to flatten as speculation swells the BOJ will delay an interest-rate hike into next year.

— Mark Cranfield, Markets Live Strategist. Read more on MLIV.

The political uncertainty has also damped expectations that the Bank of Japan will raise interest rates this month. Overnight index swaps show about a 14% chance of a rate hike in October, compared with around 63% at the beginning of this month.

In the US, Federal Reserve Chair Jerome Powell signaled that the central bank is on track to deliver another quarter-point interest-rate cut later this month. Treasuries were also supported on renewed US-China trade tensions.

--With assistance from Masahiro Hidaka.

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