Japan’s 30-year government bonds rose on Thursday after a closely-monitored auction saw a firm outcome, with market players saying strong participation from pension funds aided the demand.
The 30-year JGB yield (JP30YTN=JBTC) fell 1.5 basis points (bps) to 3.055%, after hitting a high of 3.09% amid caution about the auction.
Yields move inversely to bond prices.
“There seemed to be a significant demand for around 300 billion yen ($2.04 billion) of bonds from pension funds, which wanted to rebalance their portfolios, amid a rally of domestic stocks,” said Takashi Fujiwara, chief fund manager at Resona Asset Management’s fixed income investment division.
The Ministry of Finance auctioned about 700 billion yen worth of bonds.
Pension funds, such as the Government Pension Investment Fund (GPIF), have allocation targets for each asset in their portfolios. When stocks rise, they need to boost bond holdings to maintain that composition.
Japanese equity benchmarks have rallied this week to track gains of U.S. stocks. Japan’s Topix 
TOPIX on Thursday hit a record high.
The 10-year bond auction held on Tuesday also saw signifinat demand from the pension funds.
The 30-year bond auction was seen as a gauge for demand for the super-long dated bonds, as investors continued to weigh the nation’s fiscal health and political uncertainties.
The ruling coalition, led by the Liberal Democratic Party (LDP), lost control of the upper house last month, giving more power to opposition parties that are calling for tax reductions.
Since the loss, the fate of Prime Minister Shigeru Ishiba remains uncertain with calls for his resignation growing louder, while he insists on staying in power.
Yields across the curve fell, with the 10-year JGB yield (JP10YTN=JBTC) falling 1 bp to 1.485%.
The 40-year JGB yield (JP40YTN=JBTC) fell the most, down 3 bps to 3.3%.
($1 = 147.2800 yen)
AloJapan.com