At a sensitive moment of the "bond market storm," the market focuses on today's 30-year Japanese government bond auction.

As global long-term interest rates surge, Japan's 30-year government bond auction held on Thursday is under close scrutiny by the market. If the results are weak, the repercussions will not only affect Japan but could also spread globally.

The yield on Japan's 30-year government bonds has risen to 4.155%, approaching the historical high since these bonds were introduced in 1999. Meanwhile, the yield on Japan's 10-year government bonds reached 3% for the first time this week, the highest level in thirty years.

Concerns about Prime Minister Sanae Takaichi's expansionary fiscal agenda are continuing to rise, as various Japanese government departments submitted budget requests for the next fiscal year at a record scale, further fueling investor worries regarding the outlook for government borrowing.

This auction will also be influenced by monetary policy signals. Bank of Japan Governor Kazuo Ueda hinted this week that there is a possibility of a rate hike at the upcoming policy meeting, stating that the decision will comprehensively consider the risk of price increases. His remarks echoed those of US Treasury Secretary Janet Yellen about the need for action.

Market participants warn that if the auction result is disappointing, it could exert reverse pressure on US Treasuries, complicating US authorities' efforts to curb long-term interest rates.

Compared to 10-year bonds, the 30-year maturity is more sensitive to fiscal risk and supply-demand structure.

Against the backdrop of global long-term rates rising and surging oil prices, the 10-year bond auction earlier this week was conducted smoothly, but the market test for the 30-year maturity is clearly far more challenging.

Barclays strategist Ayao Ehara and colleagues noted in a research report:

We expect overall results to be weak to moderate. Yields remain elevated following last month's rise, and current levels are close to the fair value based on long-term factors, but fiscal concerns still act as a drag.

According to Prashant Newnaha, Senior Asia-Pacific Rates Strategist at TD Securities, the role of Japanese government bonds in the global fixed income market has fundamentally changed. He said:

Japanese government bonds were long the anchor of the global fixed income market, but now that logic has reversed. If JGB selling continues, it could trigger a repricing in global fixed income markets.

Newnaha also pointed out that the continued increase in 30-year yields might shift the market's focus back to fiscal policy, especially given Japan's debt-to-GDP ratio is much higher than when the 10-year yield last hit 3%.

Bloomberg market strategist Mark Cranfield also warned that there is a risk the yield spread between 30-year Japanese and US Treasuries could fall below 100 basis points.

There is some supportive demand in the market.

Miki Den, Senior Rates Strategist at SMBC Nikko Securities, pointed out that the previous two auctions for 30-year bonds held at around 4% yields recorded relatively high bid-to-cover ratios, and recently, life insurers and non-life insurers have accelerated purchases of super-long government bonds.

However, Den also emphasized that with uncertainty regarding when yield increases will end, investors are still cautious about actively extending duration. She expects the auction result to be between "moderate" and "weak."

This suggests that Thursday's auction will be an important barometer for recent trends in the global bond market. If results fall short of expectations, it will not only test fiscal confidence within Japan but may also ignite a new catalyst for rising global borrowing costs.