Japan's government bond market just sent up a distress flare. At Tuesday's 20-year bond auction, demand cratered — the bid-to-cover ratio fell to its lowest since 2012. Yields surged in response, with the 20-year rising around 15 basis points, hitting levels last seen in 2000. The 30- and 40-year bonds followed suit, with yields climbing to multi-decade highs. The selloff marks an inflection point: as the Bank of Japan scales back its bond purchases, long-dated debt is getting hammered. Domestic institutional buyers aren't stepping in to fill the gap — and the vacuum is starting to show.
The message from policymakers isn't helping sentiment. Prime Minister Shigeru Ishiba warned parliament that Japan's fiscal situation might be worse than Greece's, and opposed funding tax cuts through more bond issuance. That warning, paired with a shrinking economy in Q1 and ongoing tariff tensions with the U.S., is weighing on already fragile confidence. According to Sumitomo Mitsui Trust Asset Management, the selling pressure that began in 30- and 40-year bonds is now spilling over into the 20-year space — which had previously held up.
All eyes now turn to the BOJ's June 16–17 policy meeting, where it's expected to revisit its debt-buying playbook. Until then, the long end of Japan's curve is stuck in limbo. “I don't want to touch super-long bonds,” said one senior fund manager, citing oversupply and growing fiscal risks. The steepening yield curve — now the sharpest among major economies — could be signaling deeper trouble ahead unless policymakers re-engage. Investors are watching closely to see if the authorities step in, or if the pain at the long end has just begun.
