October 1, 2014 / 9:14 AM / 3 years ago

JGBs mixed as BOJ refrains from buying superlong bonds

TOKYO, Oct 1 (IFR) - Japanese government bond prices were mixed on Wednesday ahead of the next session's 10-year auction, with superlong JGBs extending losses.

Contrary to some market participants' expectations, the Bank of Japan did not offer to buy any superlong JGBs under its massive JGB purchase program. Midterm JGBs turned firmer, after the BOJ offered to buy 610 billion yen ($5.56 billion US) of JGBs maturing in 5 years.

In the afternoon, JGB futures turned higher as the Nikkei stock average accelerated its fall and ended down 0.6 percent despite the dollar's rise to a fresh six-year high of 110.09 yen.

In morning trading, some regional banks bought 8-year to 9-year JGBs on dips to average down their costs on the first trading day of the second half of Japan's fiscal year. But the majority of domestic real money accounts remained sidelined on caution ahead of Thursday's monthly 10-year JGB auction and the ensuing new-issue rush in the domestic bond market.

JGB investors widely expect the Ministry of Finance to set the coupon at 0.500 percent, re-opening the current issue (number 335) for the regular settlement date. This made it easier for dealers to sell the current 10-year JGBs short before covering in large lots in the auction, meaning that dealers' short-covering should support demand at the sale, according to a few commercial bankers.

The yield on the current 5-year JGBs was down 0.5 basis points at 0.160 percent, while the 10-year yield added 0.5 basis points to 0.525 percent. The 20-year yield rose 1.5 basis points to 1.360 percent and the 30-year yield increased 2.5 basis points to 1.630 percent.

Lead 10-year December JGB futures finished the day up 0.03 point at 145.87.

The JGB market had little reaction to the Bank of Japan's tankan index of business sentiment. Big Japanese manufacturers were slightly more optimistic in the third quarter but service-sector sentiment worsened, the central bank survey showed, adding to signs that a solid economic pickup will remain elusive without another burst of stimulus.

1 US dollar = 109.8000 Japanese yen Reporting by Masatsugu Hisatsune; Editing by Richard Borsuk

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