Japanese bond auction reveals lowest demand in 2 decades amid financial market turmoil

(MENAFN) On Tuesday, the auction of 10-year Japanese Treasury bonds revealed the lowest bid since 2003, reflecting the ongoing turmoil in Japan’s financial markets following the Bank of Japan’s recent interest rate hike. The auction for 2.6 trillion yen (USD17.9 billion) of benchmark 10-year bonds saw a spread of 0.5 basis points between the mid-price and the lowest accepted price, a significant increase from the 0.02 basis points observed in the previous month’s auction. Additionally, the coverage ratio, which measures the total demand relative to the offering size, fell to 2.98 times, the lowest level since January, indicating a substantial decline in investor interest in Japanese bonds.

This decrease in demand follows a dramatic 20.5 basis point drop in the yield on Japanese 10-year Treasury bonds, marking the largest decline since 1999. The yield’s sharp fall came amid global financial market volatility triggered by weak economic data from the U.S. Despite this decline, Japanese bonds saw a partial recovery today, with the yield climbing nearly 20 basis points to 0.95 percent, and 10-year bond futures falling by 150 basis points to 144.56 by early afternoon in Tokyo. The yen has also strengthened by nearly 5 percent against the dollar since the Bank of Japan’s decision on July 31 to raise its key interest rate to 0.25 percent, reflecting the broader impact of recent monetary policy changes on financial markets. 

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