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Today’s Auction of 20 yr JGBs Can be Scary

ADMIN || 20th January 2026

Today’s sale of traditionally unloved 20-year JGBs in many ways couldn’t come at a tougher time. Expectations for an early election helped send yields on longer-end Japanese bonds soaring on Monday and with the Feb. 8 vote now confirmed today’s auction offers a fresh potential trigger for the next JGB meltdown.

The surge in 40-year yields to a record 4% (highest since 2007) underscores the challenges the asset faces, as does the 7.5bp jump for 20-year yields. There’s also data showing Japanese insurers last month dumped unprecedented amounts of longer-dated JGBs.

There’s been a clear recovery in investors’ willingness to buy longer-dated JGBs at auction thanks to the combination of higher yields and reduced issuance. But there’s likely to be a pullback relative to December’s offering, which drew the highest bid-to-cover ratio since 2020, so the question will be how much lower the volume of bids ends up at.

The election, and concerns that the campaign will spur fresh fiscal profligacy pledges from competing parties, may act to cool some investors’ ardour for 20-year debt despite yields well above 3% on the secondary market.

Last May’s weak auction, when the BTC dropped to 2.5 and the tail widened to 1.14, offered ~750b yen of notes with the yield pricing at an average of 2.453%. The MOF is now selling ~600b yen a time and yields are substantially higher.

Of course, the relentless move up in yields does mean lower prices, but the fatter coupon payments generated offer much more protection for buy-and-hold investors. Traders will be watching to see just how many investors are going to be satisfied with that, aware that a particularly weak auction would likely send yields gapping higher across the curve.

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