PIMCO: Japan yield curve "too steep", bullish on 30-year JGBs

ME News message, May 20 (UTC+8): Inflation and fiscal concerns have pushed Japan’s 30-year government bond yield to a historic high, and Pacific Investment Management Company (PIMCO) believes there is an investment opportunity at this time. The firm’s Chief Investment Officer, Sedner, said Japan’s yield curve is “too steep” compared with other developed markets, highlighting the value of long-duration bonds. PIMCO is bullish on Japan’s 30-year government bonds and short on 10-year bonds, betting on the spread between the two narrowing. “The current risk premium is attractive in both absolute and relative terms,” Sedner said.

Japan’s yield curve is the steepest among developed markets, reflecting market worries about the central bank’s slow pace of rate hikes and long-term fiscal spending. Japan’s Prime Minister Shigeru Takamichi? has called for the compilation of a supplementary budget, intensifying the above concerns. Data shows that the spread between Japan’s 10-year and 30-year government bonds is about 130 basis points, although it is lower than the 171 basis points seen in September, it is still far higher than the U.S.’ 52 basis points and the U.K.’s 67 basis points. Sedner said the spread has begun to narrow, “It has, to some extent, normalized, but it remains one of the steepest curves globally, so we continue to hold.” (Source: Jin10)