Fixed Income Commentary: Improving Super-Long JGB Market Conditions

The report highlights improving conditions in the super-long JGB market, noting that bid-ask spreads have remained contained despite global yield volatility. This stability is attributed to better supply-demand dynamics and easing concerns over the size of the Japanese supplementary budget.

Key Takeaways

• 1.Disorderly upward yield movements in Japanese Government Bonds (JGBs) caused by declining liquidity have been avoided at this juncture.
• 2.Supply-demand conditions for super-long JGBs are improving due to reduced issuance by the Ministry of Finance (MoF) and the entry of overseas real money investors.
• 3.Concerns regarding fiscal expansion have eased as the FY26 supplementary budget is expected to be relatively small at approximately JPY 3 trillion.

Table of Contents

• Key points
• Signs of improving super-long JGB market conditions: Seem to have avoided disorderly upward yield movements due to declining liquidity
• Background: (1) Easing concerns about supplementary budget and (2) supply/demand improvements due to MoF issuance reductions
• Hard to say risk of disorderly upside yield movements over, but super-long JGB market conditions have improved compared to past
• Appendix A
• Analyst Certification
• Disclosures
• Disclaimers

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