Goldman Sachs: Higher JGB Yields From Fundamentals & Reduced Domestic Bid

Goldman Sachs note that "PM Suga and his administration approved a stimulus package translating to about ¥30.6tn in budgeted central government spending, which is broadly in line with the prior two supplementary budgets and our economists' own projections. We don't expect this package to require a material increase in longer-term JGB issuance. Instead, we see much of the needed financing coming via Treasury bill issuance and therefore don't anticipate a supply driven boost to longer maturity JGB yields. However, we've been noting that a combination of the ongoing economic recovery and portfolio rebalancing flows could lead to some erosion in demand for Japanese fixed income, supporting a move higher in yields. October Japan BOP data showed a continuation of these flows - Japanese investors remain net buyers of foreign bonds that look attractive from a yield pick-up perspective (namely, AGBs and USTs). With the 10y point well-anchored, we think these flows, taken together with improving growth fundamentals in 2021, could help maintain a steeper long-end JGB curve."