Japan 30-year bond yield rises to record high on fiscal stimulus bets

(Updates with auction result from third paragraph) By Kevin Buckland TOKYO, Oct 7 (Reuters) – The yield on Japan's 30-year government bond rose to an all-time high on Tuesday, extending its climb from the previous session after the ruling party chose fiscal dove Sanae Takaichi as its leader, setting her up to become the country's next premier. Twenty-year JGB yields marked fresh 26-year peaks and 10-year yields notched 17-year highs, with the bond market facing additional pressure from an advance for Treasury yields overnight as the U.S. government shutdown dragged on. Bond yields rise when prices fall. A closely watched auction of 536.8 billion yen ($3.57 billion) of 30-year JGBs passed smoothly, allaying some worries that investors might baulk at buying long-dated debt amid the fiscal uncertainty. Weak demand at long-term debt auctions earlier this year triggered record spikes in yields that prompted the Ministry of Finance to curtail issuance of 20-, 30-, and 40-year securities. No cash bonds traded immediately after the auction announcement, but benchmark 10-year JGB futures pared declines to be down 0.1 yen at 135.8 yen. The 30-year yield soared 6 basis points (bps) to an unprecedented 3.345% ahead of the auction results. The 20-year yield climbed 5 bps to 2.74%, the highest since August 1999, and the 10-year yield advanced 2.5 bps to 1.695% for the first time since July 2008. Takaichi was considered to have the most expansionist fiscal and monetary agenda among five candidates in the ruling Liberal Democratic Party's weekend race to replace hawkish Prime Minister Shigeru Ishiba. A veteran lawmaker, Takaichi is a devotee of the "Abenomics" stimulus policies of the late Shinzo Abe, who called for loose fiscal settings and ultra-low interest rates to revive the economy. Her win saw swaps traders rapidly adjust expectations for a Bank of Japan interest rate hike this month, with market-implied odds dropping to around 25% currently from 37% on Friday, according to LSEG data. Japan's two-year bond yield plunged as much as 5 bps to a three-week low of 0.89% on Monday, but undid part of that in the current session with a 1.5 bps rise to 0.91%. The five-year JGB yield rose 2.5 bps to 1.215%, undoing the bulk of Monday's slide. ($1 = 150.42 yen) (Reporting by Kevin Buckland; Editing by Subhranshu Sahu and Kim Coghill)

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