Japan bonds pare losses after strong auction, but fiscal worries weigh

Japanese government bonds recovered part of their early decline on Tuesday, according to Business Recorder, after a firm auction of 10-year notes. Demand at the sale climbed to its highest level since May. Even so, concerns over Prime Minister Sanae Takaichi's expansionary fiscal policies and spillover from a French debt selloff kept sentiment under pressure.

The 10-year yield climbed 1.5 basis points to 3.1% by 0349 GMT. The 20-year yield eased its gain to 1 bp at 3.98%, after earlier reaching 3.99%, a level not seen in three decades. The 30-year yield stood at 4.235%, having reached a record 4.24% earlier in the session.

Takaichi said on Monday she would limit bond issuance and respond quickly to market turmoil, aiming to reassure investors worried about the country's weakening public finances. Meanwhile, French borrowing costs jumped as investors sold the country's debt amid concern over an unpopular 2027 budget aimed at narrowing the deficit. Mizuho analyst Yuhi Kawano said upward pressure on global rates could hurt JGBs, though some flight-to-quality buying may also emerge alongside German bunds and US Treasuries. Later on Tuesday, Bank of Japan Governor Kazuo Ueda is scheduled to speak, with markets looking for signals on the pace of further rate increases.