Japan's super-long bond yields soar to records as market frets about demand

By Kevin Buckland

TOKYO, May 20 (Reuters) - The longest-dated Japanese government bond yields soared to all-time highs on Tuesday, as investors' worries about demand for the debts flared following a poor auction of 20-year securities.

Super-long JGB yields have been rising for weeks against a backdrop of elevated U.S. Treasury yields and worries about fiscal stimulus ahead of a crucial upper house election slated for July, in a headache for the Bank of Japan that may soon be compelled to act.

The central bank has steadily been reducing support for the market by paring its monthly bond purchases, unwinding decades of aggressive monetary stimulus.

Several parties have been calling for consumption tax cuts, which Prime Minister Shigeru Ishiba has so far resisted.

On Monday, he told parliament that Japan's fiscal situation was worse than Greece's at the height of the European debt crisis, according to local media reports.

The lack of buyers at the Ministry of Finance's sale of 20-year JGBs provided a catalyst for a rush to the exits on Tuesday.

"Investors' demand for duration is structurally slowing down," JPMorgan analysts said in a research note.

"While price formation without intervention from the MoF and the BOJ is ideal, some form of action is needed to stop the collapse of super-long JGBs at present, or there could be further super-long bond shocks triggered by downgrades or additional fiscal measures."

The 20-year JGB yield JP20YTN=JBTC rose as much as 15 basis points (bps) to 2.555%, the highest since October 2000, after the finance ministry announced the auction results in the early Tokyo afternoon.

The 30-year JGB yield JP30YTN=JBTC soared 17 bps to a record high of 3.14%, while the 40-year yield JP40YTN=JBTC surged 15 bps to 3.6%, also an all-time high.

The 10-year JGB yield JP10YTN=JBTC climbed as much as 4.5 bps to 1.525%, its highest level since March 28.

Mizuho strategist Shoki Omori called the auction results "lacklustre", "highlighting persistent supply-demand softness in the super-long sector and fuelling concerns over who, if anyone, will step in to buy."

Brokers and investors "appear reluctant to hold inventory, raising the likelihood of a sell-off spiral that extends beyond the 20-year tenor into both the 10-year and 30-year markets," Omori said.

The five-year yield JP5YTN=JBTC rose 2 bps to 1.015%, a level last seen on April 2, when U.S. President Donald Trump announced his "Liberation Day" tariffs.

The two-year JGB yield JP2YTN=JBTC touched 0.73%, the highest since April 3.

Benchmark 10-year JGB futures 2JGBv1 fell as much as 0.47 yen to 138.78 yen, the lowest since April 2. Bond yields move inversely to prices.