Japan to Shorten Bond Maturities in 2026 as Yields Hit 25-Year Highs
Japan's Finance Ministry plans to shorten JGB maturities in fiscal 2026 as 10-year yields hit 2.1%. The move reflects weak demand but raises concerns over a future interest burden.
Japan's debt clock is ticking faster as the government pivots its borrowing strategy. According to the Finance Ministry's latest plan released this Friday, Tokyo will pare down offerings of ultralong bonds starting in fiscal 2026, opting for shorter maturities to navigate a market with dwindling demand for long-term debt.
Surging Yields Dampen Long-Term Appetite
The shift comes as the benchmark 10-year JGB yield recently touched 2.1%, the highest point since 1999. With the Bank of Japan (BOJ) scaling back its bond-buying program, investors are increasingly wary of holding long-term paper that faces significant price depreciation. This has forced the government to adjust its issuance mix to favor short and medium-term notes.
The Risk of a Rising Interest Burden
While shortening the duration of national debt may facilitate immediate auctions, it introduces "rollover risk." As interest rates continue to climb, the government will be forced to refinance its maturing debt at higher rates more frequently. Analysts warn that if the benchmark yield hits 2.5%, Japan's total borrowing costs could effectively double, putting immense strain on the national budget.
Investment Risk: Rising Japanese yields are attracting domestic capital back home. This repatriation could trigger a liquidity drain in US and European bond markets, potentially increasing global market volatility.
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