Japan Slashes 30- and 40-Year Bond Sales by 10%—What’s Next for Global Debt Markets?

Japan just pulled the plug on long-term debt—hard. The Ministry of Finance axed 30- and 40-year bond sales by 10%, a move that’s sending shockwaves through sovereign debt markets. Here’s why it matters.

The Yield Curve Shake-Up

With global central banks still playing whack-a-mole with inflation, Japan’s cut signals deeper structural shifts. Less supply could mean higher prices (and lower yields) for existing long-dated bonds—unless demand craters first.

Crypto’s Hidden Win

While bond traders sweat, Bitcoin maximalists are grinning. Every sovereign debt hiccup makes Satoshi’s 21 million hard cap look more prophetic. ‘Store of value’ narrative incoming in 3…2…1…

The Bottom Line

Tokyo isn’t just tweaking its debt strategy—it’s betting against the longevity of fiat-based finance. Meanwhile, pension funds scrambling to match liabilities just got 10% fewer tools to work with. Thanks for nothing, BOJ.

Japan moves to short-term debt and adds household bonds

The finance ministry isn’t just pulling back. It’s also redirecting. As part of the same plan, it will sell more short-term securities, including two-year notes and shorter T-bills. Those will each get 600 billion yen more in issuance.

Starting October, each auction of two-year bonds will rise by 100 billion yen, hitting 2.7 trillion yen total. On top of that, they’ll also issue 500 billion yen more in principal-guaranteed JGBs aimed at retail investors, trying to balance their investor base and soak up more demand from individuals instead of just institutions.

Japan’s Ministry of Finance is also preparing to buy back older super-long bonds that carry low coupons. That’s meant to rebalance supply and demand, especially since those older bonds aren’t very appealing in a higher-yield environment. This whole revised issuance program will be discussed with primary dealers during a scheduled meeting on Friday, where officials are expected to get feedback before locking in the changes.

The background to this isn’t just about Japan’s own market. The whole global bond market has been under pressure, with investors dumping long-term debt across the board as inflation and credit concerns Flare up again. That’s partly why Japan’s longest-dated JGBs became a target last month. Investors didn’t want to hold duration anymore. Super-long yields surged. Auctions flopped. That’s when the finance ministry had to step in.

Traders react and analysts raise warnings on credit risk

The fallout has already hit the bond market. After the news of the cut in long-term issuance hit, demand for five-year JGBs soared. The most recent auction got the highest bid-to-cover ratio in almost two years. The five-year yield dropped 4 basis points, settling at 0.965% by Thursday afternoon.

Meanwhile, the very long-dated stuff didn’t benefit much. The 30-year yield actually climbed 1.5 basis points to 2.945%, showing the market still isn’t calm on that end of the curve.

This isn’t Japan’s first time scaling back long bonds. The original bond plan for the year already factored in smaller 30- and 40-year sales due to lower appetite from the insurance sector. Most life insurers, who are the traditional buyers of long paper, had already stocked up early to meet new solvency rules.

But what really broke the system was the global selloff and a panic about debt sustainability across rich countries. That dragged Japan in too.

Not everyone is impressed by how Japan’s handling this. Katsutoshi Inadome, who’s a senior strategist at Sumitomo Mitsui Trust Asset Management, said the MOVE to avoid raising five-year issuance caught markets off guard. “It was a (positive) surprise to the market that the government is not increasing sales of five-year JGBs in the revision,” Katsutoshi said.

But then he added a more blunt take on the broader change: “Heavier reliance on shorter-term bonds is a sign of Japan’s falling credit quality. Essentially, it’s not the Ministry of Finance’s responsibility but lawmakers’ to carry out debt management with a sense of crisis.”

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