Japan's yield curve steepens on concerns about fiscal health

By Junko Fujita

TOKYO, July 7 (Reuters) - Japan's yield curve steepened on Monday amid a sell-off of super-long maturity bonds as concerns about the nation's fiscal health resurfaced ahead of upper house elections this month.

The 20-year JGB yield JP20YTN=JBTC rose 4.5 basis points to 2.415%, its highest since June 4.

The 30-year JGB yield JP30YTN=JBTC jumped 5.5 bps to 2.92%.

Polls released by local media over the weekend raised concerns that the Liberal Democratic Party and coalition partner Komeito could lose their majority at the July 20 election.

"If that happens, the LDP may have to agree with other parties' calls to reduce taxes," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

The coalition plans to include cash handouts in their campaign pledges to help households cope with inflation, but has resisted calls from opposition parties for tax cuts.

The yields on super-long bonds rose to their record highs in May on growing concerns about the worsening fiscal condition.

The sell-off eased after Reuters reported in the same month that the Ministry of Finance was considering trimming issuance of such bonds.

But a reduced sale of the bonds has not helped revive demand for the bonds. An auction of 30-year bonds last week witnessed a weak outcome, sending the yield up 6 bps on that day.

"The ministry provided the first aid by trimming issuance of bonds, but it did not work because the fundamental problems, which are the worries about fiscal expansion, have not been fixed," Inadome said.

On the day, the 10-year JGB yield JP10YTN=JBTC rose 2 bps to 1.455%.

The two-year JGB yield JP2YTN=JBTC fell 0.5 bp to 0.73% and the five-year yield JP5YTN=JBTC was flat at 0.97%.

Yields move inversely to bond prices.