Japan calls for more 40-yr JGB issuance in FY2020/21

Japanese bond investors on Monday urged the Ministry of Finance (MOF) to increase 40-year government bond (JGB) issuance as investors desperately hunt for yields given the slim returns on hand under the central bank's ultra-low rate policy, ministry officials said on Monday.

With yields of up to 10-year maturity hovering below zero, investors are focusing on super-long bond issuance as the ministry began a year-end process of compiling annual debt issuance plan for the next fiscal year from April 2020.

A rise in the amount of 40-year bond issues longest maturity in Japan would mark the first increase in the super-long bond issuance in three years.

There was no mention of new 50-year bond issuance at a meeting with primary bond dealers constituting market players from the banks and stock brokerage firms that are obliged to make a successful bid at JGB auctions.

"Many participants agreed the balance of super-long bonds with 20-, 30- and 40-year maturities need to be maintained as the market functions with these zones," a MOF official said.

"There were opinions 40-year bonds, in particular, may as well be increased, taking the underlying market demand into account."

The finance ministry routinely holds a meeting with primary dealers to hear their opinions, although they won't have a direct bearing on bond issuance plans, the official said.

Analysts say there is heightened uncertainty on the JGB issuance plan, which could depend on tax revenue estimates and spending to fund an economic package to prop up growth. Ruling party lawmakers have called for extra spending worth $92 billion.

"IF 40-year bonds were to increase, that would steepen the yield curve, which could help Bank of Japan's efforts to form an appropriate yield curve," said Noriatsu Tanji, chief bond strategist at Mizuho Securities.

Ataru Okumura, the bond strategist at SMBC Nikko Securities, expects the government's plan to compile a sizable economic package may help boost long-term debt with low borrowing cost.

"The impact on the yield curve from any increase in super-long bond yields would be limited though, as investors such as life insurance firms tend to buy super-long bonds on dips," he added.

In Japan, 40-year JGBs debuted in November 2007, with the MOF counting on demand from life insurance firms, pension funds, and overseas investors to expand the super-long JGB market.

Since then, the weighted average maturity of JGBs has risen gradually as the government took advantage of the low-rate environment for locking in cheap borrowing costs for the long-term.

Of about 130 trillion yen of JGBs sold to the market this fiscal year, 40-year bonds accounted for 2.4 trillion yen or 1.8% of overall issuance.