Benchmark JGB yields at 7-week high as election looms

Yields on benchmark Japanese government bonds (JGBs) jumped to a seven-week high on Monday, as concerns grew that an upcoming election would lead to more fiscal expansion.

Prices for super-long-dated bonds sank last week, driving yields sharply higher, as prospects dimmed that Prime Minister Shigeru Ishiba's ruling coalition will retain its majority in the upper house after a vote on July 20.

The potential defeat could give power to opposition parties that have pledged in their campaign platforms to cut or abolish the sales tax. Fiscal concerns and a drop in demand at debt auctions triggered a surge in super-long yields to record levels in late May. The Ministry of Finance this month trimmed its issuance of super-long JGBs in response.

The 10-year JGB yield (JP10YTN=JBTC) rose 5 basis points (bps) to 1.55%, its highest since May 23.

The two-year yield (JP2YTN=JBTC) rose 1.5 bps to 0.775%, while the five-year yield (JP5YTN=JBTC) rose 2.5 bps to 1.055%.

Super-long JGB yields were unchanged in early trading.