Japan's 15-Year JGB Yield Appears Abnormally High, Likely Distorted by Simple Yield Calculation Methods
Claire Weston
Japan's 15-year government bond yield is approaching 4.25%, exceeding the 20-year, 30-year, and even 40-year — a rare hump in what should be a smooth upward curve. Behind it: real supply-demand shifts, and a decades-old calculation method that may be manufacturing an illusion.
What is going wrong with the yield curve?
Japan's 15-year JGB yield is near 4.25% — higher than the 20-year, 30-year, and 40-year.
Under normal conditions, the 15-year should sit between the 10-year and 20-year. That pattern held for years until it broke recently.
This means → the curve has developed a visible hump at the 15-year point — it is not the entire curve shifting upward.
Who is dumping 15-year bonds?
Chris Scicluna, head of European research at Daiwa Capital Markets, notes that Japan's Ministry of Finance cut new issuance of super-long bonds at the start of this fiscal year. That pushed up 30-year prices and compressed their yields — widening the spread against the 15-year.
Masayuki Nakajima, senior strategist at Mizuho Securities, adds that Japanese life insurers have been swapping low-coupon, low-price 15-year JGBs into newly issued super-long bonds. The goal: lock in large unrealised losses to offset accounting gains from equity holdings.
In plain terms = insurers are actively selling 15-year paper and buying ultra-long paper. The sell side hits the 15-year; the buy side lifts the ultra-long — pushing them in opposite directions.
How does an old formula create an illusion?
Mike Riddell, fund manager at Fidelity, points to a deeper issue: Japan's JGB market still uses "simple yield" — coupon plus amortised premium divided by market price, no iterative compounding — while most major markets quote yield to maturity (YTM).
Simple yield could be calculated by hand before computers were widespread. But when a bond's price diverges sharply from par, the gap between simple yield and YTM widens dramatically.
This means → the 15-year benchmark bond was issued years ago, carries a low coupon, and trades well below par — exactly the conditions where simple yield overstates the true return. Part of that 4.25% is formula distortion, not market pricing.
Why don't the 10-year and 30-year show this problem?
FT Alphaville matched every monthly 15-year benchmark bond since 2014 and recalculated in YTM terms. The gap between the two methods is now substantial.
The 10-year and 30-year benchmarks are nearly always fresh issues, with coupons close to par. Their simple-yield approximation error stays small — so those tenors look "normal."
In plain terms = the 15-year sits at the intersection of "old bond + old formula" — a double distortion. Other tenors escape the trap because they roll into new issues frequently.
What does this mean for market positioning?
The abnormally high 15-year yield reflects both real supply-demand forces (insurer rotation + issuance cuts) and a measurement artefact from Japan's quoting convention.
This means → strip out the simple-yield distortion, and the market's read on Japanese long-end rate risk may need recalibrating — actual interest-rate pressure is likely less severe than the 4.25% headline suggests.
This reflects a broader issue: when a market's baseline quoting method differs from the global standard, cross-market comparisons and risk assessments can be systematically skewed.
Content is for reference only, not financial advice.