Japan's 30-year bond yields rise to record as auction tests demand

By Rocky Swift and Junko Fujita

TOKYO, Dec 4 (Reuters) - Record-high yields on 30-year Japanese bonds helped support demand at an auction of the debt on Thursday at a time when the government plans massive debt-fuelled stimulus.

The 30-year Japanese government bond (JGB) yield climbed to an unprecedented 3.445% in early trade. The benchmark 10-year yield JP10YTN=JBTC reached 1.905%, the highest since July 2007.

Long-dated bonds remain under pressure following the announcement of a spending plan by Prime Minister Sanae Takaichi that will be funded largely by new borrowing.

Shorter-term notes have been sold off on expectations of interest rate hikes by the Bank of Japan.

The Ministry of Finance sold about 700 billion yen ($4.51 billion) in 30-year JGBs. The bid-to-cover ratio, a measure of demand, was 4.04, the highest since May 2019.

The 30-year JGB rallied after the auction, with the yield falling 3 basis points (bps) to 3.385%.

The high yields led to strong demand among investors betting that rate levels may have topped out, according to Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

"The auction was supported by the view that shorter yields will rise due to BOJ hike prospects, flattening the yield curve," Den said.

The government has shown its concerns over the sharp increase in JGB yields, with Chief Cabinet Secretary Minoru Kihara reiterating on Thursday that officials were closely watching market moves.

Elsewhere, BOJ Governor Kazuo Ueda said there was uncertainty on how far the central bank could raise rates due to difficulty in estimating the country's neutral rate of interest.

The 20-year yield JP20YTN=JBTC reached 2.94%, the highest since June 1999. The five-year yield JP5YTN=JBTC rose 0.5 basis point to 1.39%.

($1 = 155.1700 yen)