TOKYO May 16 Japanese government bonds edged
lower on Tuesday, underpinned by decent demand at a five-year
auction but pressured by rising U.S. Treasury yields as well as
expectations that Japan's central bank will continue to pare its
The benchmark 10-year cash JGB added 1 basis
point to 0.045 percent, while 10-year JGB futures edged
down 0.07 point to close at 150.61.
The two-year yield rose 1 basis point to
minus 0.165 percent, its highest level since December 2016.
"One of the reasons is that the BOJ has been tapering its
purchases in the two-year sector, so a lot of dealers who held
inventory of two-year JGBs are unwinding their positions," said
Tadashi Matsukawa, head of fixed income investment in Tokyo at
The Bank of Japan has been reducing the amount of JGBs it
buys in some zones in recent weeks, putting the bank on track to
fall short of its official guidance to increase bond holding by
80 trillion yen a year, and highlighting a growing discrepancy
between what the BOJ says it will do in its official policy
statement and what it actually does in its market operations.
"A lot of dealers were betting for the steepening of the
yield curve, so they were kind of caught off guard," Matsukawa
said. "And also, we had a five-year auction today, and some of
the selling in the two-year sector was done in order to use up
inventory at the short end of the curve."
At the Ministry of Finance's sale of 2.2 trillion yen
($19.39 billion) of five-year JGBs with a 0.1 percent coupon,
some 41.5877 percent of the bids were accepted at the lowest
price of 101.040.
The sale drew bids of 3.59 times the amount offered, up from
the previous sale's bid-to-cover ratio of 3.28 times and from
2.86 at March's five-year sale.
The tail between the average and lowest accepted prices
narrowed to 0.2, compared with that of last month's offering at
0.04, suggesting stronger demand for the bonds.
The benchmark 10-year U.S. Treasury yield has
largely held in a range between around 2.20 percent and 2.40
percent since late March, investors wait on further clarity on
whether President Donald Trump's administration is likely to
pass tax and fiscal overhauls this year.
U.S. Treasury yields drifted higher on Monday as investors
evaluated how many times the Federal Reserve was likely to raise
rates this year.
By contrast, many market participants expect the BOJ's next
move to be a withdrawal, not an expansion, of stimulus as global
demand has given the domestic economy a lift.
BOJ Governor Haruhiko Kuroda said on Tuesday he was "quite
sure" the central bank could smoothly exit from its massive
monetary stimulus when the appropriate time to do so came.
But he also said the BOJ "always" had room to expand
monetary stimulus to achieve its 2 percent inflation target,
indicating that wages and prices had been slow to respond to
improvements in the economy.
($1 = 113.4600 yen)
(Reporting by Tokyo markets team; Editing by Simon