BNP Paribas Asset Management has been raising its positions in long-dated Japanese government bonds, attracted by a steep yield curve and signs that domestic demand is returning to the market.

The firm has increased its long-end JGB position from a “very small size” early this year to a “moderate to medium size,” favoring 20- and 30-year bonds, said James McAlevey, head of global aggregate and absolute return.

“What we prefer is the long end of the market because the curve is so steep,” McAlevey said at a briefing in Tokyo last week. The sector has “significantly outperformed other global long ends” recently, providing a source of diversification, he said.

In some flexible strategies, the firm is short two- and five-year JGBs against long positions in 20- and 30-year debt, effectively betting on a flatter yield curve.

The bullish stance comes after superlong JGB yields reached multidecade highs this year amid concerns over inflation, fiscal spending and the Bank of Japan’s policy path.…