| LONDON, Sept 20
LONDON, Sept 20 Long-dated euro zone government
bond yields fell on Tuesday with the Bank of Japan expected to
enact measures that may push Japanese investors away from their
country's longer-maturity bonds and towards Europe and the
The Japanese central bank is to end a key meeting on
Wednesday and is widely expected to shift the primary focus of
its monetary policy to negative interest rates.
It is also expected to focus on "curve steepening" -
increasing the yield on long-dated Japanese government bonds
(JGBs) compared to shorter-dated debt by focusing its asset
purchases at the short end.
"A super steepener announcement from the BOJ on Wednesday
might have the effect of pushing down the yields of long-dated
bonds in the U.S. and Europe," said David Schnautz, rates
strategist at Commerzbank.
He said this would be driven by Japanese insurers and
pension funds who generally need to own long-dated bonds to
match their liabilities; potential losses on their holdings in
JGBs could push them overseas.
"It's risky in the long term because if the BOJ goes down
this road, it may well be a signal for the ECB to the same thing
as well. But the market seems to be moving on this short-term
expectation at the moment," he said.
The yield on 30-year German Bunds fell 5 basis
points to 0.60 percent, and there were similar moves on Dutch,
Finnish, French and Spanish 30-year government bonds.
Other euro zone bond yields also fell, if not quite so
sharply. Germany's 10-year Bund, the region's benchmark bond,
dropped 1.8 bps, turning back into negative territory
Portugal outperformed, its 10-year yield
dropping 4.3 bps to 3.34 percent, adding to a 10 bps fall in
yields on Monday following S&P's decision to affirm the
country's rating at BB+ and maintain a stable outlook.
Later on Tuesday, Germany's debt management office may
publish its issuance calendar for the fourth quarter of the
year, and could cut its borrowing needs thanks to a strong
budget performance, according to Commerzbank.
The Netherlands is to present its 2017 budget on Tuesday.
ING strategists expect the funding need to be at least 5 billion
euros higher than 2016's 74 billion euros figure, mostly driven
by an increase in redemptions.
"The higher funding need will likely translate into a DSL
issuance target of 35-37.5 billion euros - up from 25-30 billion
this year," the strategists said in a note.
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(Reporting by Abhinav Ramnarayan)