Japan's 40-year government bond auction attracted its strongest demand since 2020, driven by relatively high yields. The bid-to-cover ratio reached 3.1, surpassing the previous auction's 2.82 and the 12-month average of 2.67. Japan's bond futures held gains following the sale. The 40-year yield last traded at 4.23%.

The sale occurs amid concerns the Bank of Japan may be falling behind the curve. Governor Kazuo Ueda offered limited guidance on the pace of future tightening after a widely expected rate hike earlier this month. Policymakers may need to raise rates more aggressively. Kazuo Momma, a former executive director in charge of monetary policy, suggested the central bank could raise its benchmark rate for a second straight month in October. Fiscal concerns are adding pressure on super-long JGBs, with the government reportedly considering a new mid-term defense spending target of 3.5% of GDP.

These domestic pressures exist against a broader global bond selloff, led by Treasuries. Yields across much of the curve are near multi-decade highs, while rising oil prices reinforce expectations for further Federal Reserve interest-rate hikes. The 40-year tenor is traditionally favored by life insurers seeking to=0.0.0.0.