Global Fund Managers Turn Bullish on Japanese Government Bonds as Long-End Yield Appeal Grows
nashnova research
Several global asset managers are rebuilding positions in Japan's long-dated and ultra-long government bonds, with the 30-year yield already down nearly 40 basis points from its 4.25% peak; the FY2027 debt-issuance plan remains the biggest test of the recovery in sentiment.
Who is buying — and what exactly?
T. Rowe Price had cut its JGB exposure earlier this year but has now shifted to favour longer-duration bonds.
Allianz Global Investors is selectively adding intermediate and long-term JGBs; BNP Paribas Asset Management has scaled its ultra-long-end holdings from a "very small" position at the start of the year to "medium-sized", focused on 20-year and 30-year maturities.
This means → the bearish consensus that formed on fiscal concerns and BOJ rate-hike uncertainty is being revised across multiple firms simultaneously.
Why do yields suddenly look attractive?
The 30-year JGB yield has dropped nearly 40 basis points from its 4.25% peak earlier this month; the 2-year/30-year spread has narrowed roughly 70 basis points since July.
Deutsche Securities' chief Japan fixed-income strategist Shoki Omori notes that when the 10-year crossed 3% and the 30-year hit 4%, valuations reached levels of rare attractiveness not seen in decades.
In plain terms = about two-thirds of the current yield reflects term premium — the extra compensation investors demand for holding long-dated bonds — rather than a pure bet that rates will keep rising. The long end is genuinely cheap, not just repricing rate expectations.
What does the demand picture look like?
Japanese life insurers have been net buyers of ultra-long JGBs for four consecutive months; overseas investors have been net buyers for three straight months, reversing net selling in April and June.
Allianz's Asia-Pacific fixed-income CIO Mark Tay says real yields are more attractive and evidence of returning domestic demand plus growing foreign interest is "accumulating."
T. Rowe Price portfolio manager Vincent Chung expects retail buying to return by year-end, with potential tax incentives and a possible asset-allocation shift by the Government Pension Investment Fund (GPIF) adding further support.
Where is the biggest risk?
The FY2027 debt-issuance plan is the key test for current bullish sentiment — investors are watching closely how the government will fund proposed food consumption-tax cuts and higher defence spending.
Vincent Chung warns that if the budget fails to specify funding sources, his curve-flattening thesis is at risk.
Shoki Omori cautions that a larger-than-expected supplementary budget, or an issuance plan that does not further compress ultra-long-end supply, could reverse the recent flattening trend.
Who is still on the sidelines?
Brandywine Global Investment Management had previously cut JGB exposure and sold its 30-year holdings; it has not yet re-entered.
Portfolio manager Carol Lye sees the policy shift under Prime Minister Takamura Sanae as helpful in anchoring yields, but says the market still needs a credible fiscal-financing plan.
This means → not every firm has turned bullish; with 10-year yields back below 3%, some see the most attractive entry window as potentially narrowing. The BOJ's rate decision on Friday is widely expected to hold rates steady — the focus will be on Governor Ueda Kazuo's forward guidance.
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