Citi: JGB Yields May Be Nearing Peak as Clearer Fiscal Outlook Set to Boost Demand
nashnova research
Citi strategist Tomohisa Fujiki argues Japanese government bond yields are nearing their peak, with fair value for the 10-year at 2.5%–3.0%; as fiscal policy clarity improves, institutional buyers are set to increase allocations, turning JGBs from a sell into a value play.
Why does Citi say JGBs are "increasingly attractive"?
Fujiki's Oct 5 report delivers a clear call: JGB yields may have already peaked, making current levels a buying opportunity.
His logic chain: Japan's potential growth rate has not materially changed → if inflation stabilizes around 2% → fair value for the 10-year yield is 2.5%–3.0%.
This means → with the 10-year currently at 3.116%, already above the top of that range, Citi sees limited room for further sharp rises.
What drove JGB yields so high in the first place?
Five forces pushed yields up simultaneously: energy-driven inflation fears, the BOJ stepping back from bond purchases, bets on faster BOJ tightening, doubts over government fiscal discipline, and a global bond selloff.
The result: the 10-year yield broke above 3% for the first time last month; the 30-year hit a record 4.279% intraday.
In plain terms = markets were spooked by inflation, central-bank tightening, and government spending all at once — a triple fear that hammered JGB prices (yields move inversely to prices).
Who is buying JGBs now?
Global bond-market attention is shifting from Japan to France's fiscal troubles; some investors have begun selling French government bonds and rotating into JGBs.
Late-September auctions of 2-year and 40-year JGBs both showed strong demand — high yields are creating real buying incentives.
Citi expects the JGB yield curve to flatten as markets digest BOJ rate-hike expectations and supply-demand conditions improve (long-end yields fall, short end stays anchored).
What should investors watch next?
The key test: whether Japan's fiscal outlook genuinely clears up — if the government convinces markets it can control spending, institutional money will follow.
This means → Citi's "peak yield" call is not a bet on rates themselves but on whether fiscal discipline can rebuild market confidence.
The risk: if inflation overshoots or the BOJ hikes faster than priced in, yields could still push higher.
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