February 23, 2017 / 4:31 AM / 7 months ago

JGBs firm, superlong zone outperforms after strong 20-year sale

TOKYO, Feb 23 (Reuters) - Japanese government bonds firmed on Thursday, after better-than-expected demand at an auction of 20-year JGBs.

The benchmark 10-year JGB yield inched down 0.5 bp to 0.075 percent, while 10-year JGB futures were up 0.13 point at 150.21 in afternoon trade, lifted from their morning session close of 150.16 by the auction results.

Superlong JGBs outperformed, with the 20-year yield falling 3 bp to 0.660 percent and the 30-year JGB yield also shedding 3 bp to 0.865 percent.

At the Ministry of Finance’s sale of 1.1 trillion yen ($9.71 billion) of 20-year JGBs with a 0.6 percent coupon, 84.1181 percent of the bids were accepted at the lowest price of 98.75.

The sale drew bids of 4.05 times the amount offered, up from the previous sale’s bid-to-cover ratio of 3.54 times.

The tail between the average and lowest accepted prices narrowed to 0.04, compared with that of last month’s 0.08. That indicates stronger demand for the bonds, which many investors will likely sell to the Bank of Japan through its asset purchase program.

The BOJ is considering adding specific dates when it announces the details of its debt-buying operations each month, according to sources knowledgeable about the matter. At the end of each month, the BOJ announces the details of upcoming JGB buying operations, but until now these have not included the operation dates.

The central bank buys a wide range of Japanese government bonds from the market through operations conducted a few times each week, as a part of its massive easing scheme.

A growing number of analysts now expect the BOJ’s next step to be a withdrawal, not an expansion, of stimulus, most likely through an increase in its 10-year yield target.

But on Thursday, BOJ board member Takahide Kiuchi said changing the BOJ’s yield target would not be easy as doing so frequently could erode its credibility.

A former market economist, Kiuchi has been the lone opponent of the BOJ’s asset-purchasing programme and has been proposing unsuccessfully that the central bank taper its buying.

$1 = 113.2300 yen Reporting by Tokyo markets team; Editing by Shri Navaratnam

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