February 5, 2015 / 5:13 AM / 3 years ago

JGBs erase losses amid 30-year auction relief

TOKYO, Feb 5 (Reuters) - Japanese government bonds reversed their early losses on Thursday after demand at a sale of 30-year bonds was not as weak as many investors had feared, after a downbeat 10-year auction earlier this week raised concerns.

The Ministry of Finance sold 551.0 billion yen of 30-year JGBs with a 1.5 percent coupon, at a lowest accepted price of 100.20. The bid-to-cover ratio, a gauge of demand, was 2.67, down from 3.57 at January's 30-year sale, while the tail measuring from the gap between the average and accepted lowest prices widened to 0.54 from 0.17. A larger tail suggests weaker demand.

"This time, a lot of dealers were well-prepared, and they pushed the price down, so real investors came in and bought the 30-year, and that's behind the strength today," said Tadashi Matsukawa, head of fixed-income investments at PineBridge Investments in Tokyo.

"In the short-term, I think the worst is over. The market just got too oversold into the auction, so it was a good time for investors to buy," he said.

The 30-year yield shed 7 basis points to 1.355 percent after earlier rising as high as 1.465 percent, its highest since Nov. 18.

The 20-year yield lost 5 basis points to 1.105 percent after rising as high as 1.200 percent, its highest since late November.

The yield on the benchmark 10-year JGB slipped 3.5 basis points to 0.340 percent, moving back toward a record low of 0.195 percent hit on Jan. 20 and away from a session high of 0.400 percent.

The 10-year futures contract was up 0.21 point at 147.51, above a session low of 147.09 plumbed in the morning. (Reporting by Tokyo markets team; Editing by Richard Borsuk)

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