Core Viewpoint - The strong demand for Japan's 40-year government bond auction alleviated immediate market concerns regarding ultra-long-term bonds, with the bid-to-cover ratio reaching its highest level since March of the previous year [1]. Group 1: Auction Results - The bid-to-cover ratio for the 40-year bond auction was 2.76, surpassing the previous auction's ratio of 2.585 and the 12-month average of 2.53 [1]. - Following the auction results, the yield on the 40-year bond fell by 2 basis points to 3.915%, retreating from a historical high of 4.215% reached over a week ago [1]. - Other bond yields also declined, indicating a stabilization in market sentiment [1]. Group 2: Market Sentiment - Mizuho Securities' chief strategist noted that the successful absorption of supply and strong auction performance helped stabilize sentiment in the ultra-long-term bond sector, easing immediate concerns about demand vacuum [2]. - Bloomberg strategist pointed out that the auction passed market tests, with the bid-to-cover ratio slightly above the one-year average and the highest yield slightly below expectations [2]. - Major insurance firms expressed interest in Japan's ultra-long-term bonds, indicating attractive investment opportunities [2]. Group 3: Ongoing Volatility - Despite the positive auction results, strategists warned that volatility may persist, as the demand appears to be supported by high yield levels and tactical buying rather than a broad improvement in confidence [3]. - Concerns about the impact of Prime Minister Kishi's tax cut proposals on investment in ultra-long-term bonds suggest that instability may continue until after the upcoming elections [3]. - Analysts indicated that volatility in the ultra-long-term bond sector could last until after the election results clarify Japan's political power balance [3]. Group 4: Fiscal Concerns - Reports indicate that the Kishi administration and the Bank of Japan are troubled by how to navigate the elections without causing market collapse, especially as Kishi's approval ratings have slightly declined [4]. - The largest opposition party's commitment to permanently cut food taxes has heightened concerns about weakened fiscal discipline regardless of the election outcome [4]. - Recent fiscal policies proposed by Kishi have led to significant fluctuations in the yen and government bonds, with the yen recently dropping to near 160 against the dollar [4].