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(Bloomberg) — Japan’s 40-year government bond auction drew demand that was in line with its 12-month average as higher yields attracted investors despite escalating tensions in the Middle East.
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The bid-to-cover ratio at Tuesday’s sale was 2.54 compared with 2.76 at the last auction, and a 12-month average of 2.54. Japan’s bonds held onto gains after the sale.
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Bond yields globally have climbed as a surge in energy costs leads traders to position for central bank rate hikes. Japan’s 40-year rate is hovering around 3.75%, not far off from its record high hit in January.
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Japan relies on the Middle East for about 90% of its oil imports, so prolonged conflict in the region risks fueling inflation in the Asian nation. Bonds rebounded after President Donald Trump said the US would postpone strikes against Iran’s energy infrastructure after what he called “productive conversations” with the country.
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The rise in bond yields and oil prices are feeding into yen weakness even after Bank of Japan Governor Kazuo Ueda kept the possibility of an April rate hike on the table at the central bank’s policy meeting last week. Japan’s top currency official said Monday that the government will take all possible steps to respond to speculative moves in markets as needed.
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The country plans to reduce sales of government bonds during the fiscal year starting in April, focusing on cuts to super-long debt. The finance ministry is also preparing to reclassify its liquidity supply auctions so it can improve conditions in the long-term zone, according to people familiar with the plan.
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