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Japan Bond Rout Deepens on Fears Over Takaichi’s Fiscal Package

(Bloomberg) -- Japan’s longer-maturity sovereign bonds tumbled further Tuesday as investor worries deepened that a big economic package from Prime Minister Sanae Takaichi would damage the nation’s public finances.

Yields on 40-year bonds jumped 8 basis points to 3.68%, their highest level since the securities debuted in 2007, while 20-and 30-year debt each rose at least 4 basis points. The 30-year yield is just a few basis points away from a record high.

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Traders are focused on the figure for actual spending in Takaichi’s economic plan as they weigh the risk that rising debt issuance may threaten market stability in Japan. The size is expected to surpass last year’s ¥13.9 trillion ($89.8 billion), according to a Bloomberg survey. Finance Minister Satsuki Katayama said Tuesday that while she couldn’t comment in detail at this stage, the package has become “somewhat larger so far”.

The bond moves are heightening caution ahead of a 20-year debt auction on Wednesday, where market watchers are expecting weak demand. The rout in Japanese bonds stood in contrast with global peers, with Treasury and Australian government bond yields edging down Tuesday.

“Bond buying will likely remain limited until the government’s economic package, which is set for approval by the Cabinet on Nov. 21, is unveiled,” said Kazuya Fujiwara, a fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. He added that investors are also hesitant to buy longer-dated bonds ahead of the 20-year bond auction.

Takaichi is scheduled to meet with Bank of Japan Governor Kazuo Ueda at 3:30 p.m. Tokyo time, with any remarks from the two following their discussions closely watched for indications on the timing of the next interest rate hike by the central bank.