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JGBs climb as rekindled Europe concerns sap appetite for risk
April 5, 2012 / 7:14 AM / 5 years ago

JGBs climb as rekindled Europe concerns sap appetite for risk

* Stocks extend losses after Spanish auction raises funding fears

* Profit-taking emerges after 10-yr yield drops under 1 pct

* Foreigners sold record amount of money market instruments last wk

By Lisa Twaronite

TOKYO, April 5 (Reuters) - Japanese government bond prices rose on Thursday, with equities sagging after a weak Spanish bond auction rekindled fears about Europe’s debt problems and sapped investor appetite for risk.

The June 10-year JGB futures contract ended 0.16 point higher at 141.74, while the yield on 10-year notes shed two basis points to 1.005 percent, moving further away from support at the March 15 high of 1.060 percent.

Profit-taking emerged when the 10-year yield fell as low as 0.995 percent. The 1 percent mark is viewed as a key barrier, as it has been a major yield resistance level in the past.

Slumping stocks added to the appeal of bonds, with the benchmark Nikkei extending the previous session’s sharp losses to fall 0.5 percent.

“The Nikkei is now slipping below 10,000, and there are new concerns about the European debt crisis and U.S. Treasury yields have started to decline again, so Japanese investors are waiting to see if the risk-off trend has run its course or not,” said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co.

Some of the hesitation is also due to seasonal factors, she said, with trading activity likely to pick up after the Golden Week holidays that start in Japan on April 29.

“At the beginning of the fiscal year, some investors are on the sidelines, busy with administrative work and taking some time to decide on their investment plans for the new fiscal year. Usually life insurers and megabanks are more active after the Golden Week holidays are over,” Hasegawa said.

SLOW GRIND

JGBs benefited from heightened concerns about funding difficulties by lower-rated euro zone countries, after Spain’s borrowing costs jumped at bond auctions on Wednesday. Its 10-year bond yield leaped to 5.7 percent, its highest since January.

“The major concerns regarding headwinds still exist. If there are global headwinds, JGBs will continue to do very well,” said a trader at a European brokerage in Tokyo.

“It will be a slow grind for higher rates in Japan, if they ever get there. I don’t see an environment in the near-term where rates will be under pressure,” he added.

The 20-year bond outperformed, with its yield falling three basis points to 1.770 percent, while the five-year yield slipped 1.5 basis point to 0.330 percent.

The 30-year bond yield declined 2.5 basis points to 1.955 percent, moving away from a four-month high of 1.990 percent hit on Wednesday.

Data from Japan’s Ministry of Finance on Thursday showed foreign investors returned to net buying of Japanese bonds last week, with net purchases of 144.1 billion yen.

Foreign investors sold a record net 3.477 trillion yen in money market instruments last week, the most since the ministry started compiling the data in 2005.

A ministry official said the high number was due to technical factors as investors sold instruments that matured last week.

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