March 22, 2017 / 7:17 AM / 8 months ago

JGBs gain, taking cue from U.S. Treasuries, strong 40-year sale

TOKYO, March 22 (Reuters) - Japanese government bonds rose on Wednesday, taking their cue from rising U.S. Treasuries and bolstered by strong demand at an auction of 40-year bonds.

The benchmark 10-year JGB yield fell 0.5 basis point (bp) to 0.055 percent, while the 10-year JGB futures ended up 0.15 point at 150.42.

In the superlong zone, the 20-year JGB yield fell 1 bp to 0.635 percent, while the 40-year JGB yield also fell 1 bp to 1.025 percent.

The Ministry of Finance’s sale of 500 billion yen ($4.48 billion) worth 40-year JGBs with a 0.4 percent coupon produced a highest yield of 0.9350 percent, with only 13.6363 percent of the bids accepted at the lowest price.

The sale drew bids at 2.95 times the amount offered, not far from the previous sale’s bid-to-cover ratio of 2.99 times.

U.S. Treasury yields fell to three-week lows on Tuesday as stock markets tumbled, raising demand for U.S. government debt. Japan’s stocks also skidded on Wednesday, with the Nikkei stock index plumbing to its lowest levels since late February.

JGBs often take their directional cues from U.S. Treasuries.

Bank of Japan board members have however rejected suggestions the central bank should raise its 10-year government bond yield target to match expected gains in Treasury yields, minutes of their January monetary policy meeting released on Wednesday showed.

“Although some market participants speculated that the Bank might consider raising the target level of the long-term interest rate in response to such factors as a rise in the U.S. long-term interest rates, its monetary policy decisions should be made solely based on the viewpoint of aiming to achieve the 2 percent price stability target,” some members said.

BOJ Governor Haruhiko Kuroda said in parliament on Wednesday that the BOJ’s government debt purchases are for monetary easing and do not lower the government’s debt burden.

Kuroda said that if the BOJ exits its quantitative and qualitative easing policy, it would also need to raise the interest rate it applies to excess commercial bank reserves and reduce the money supply.

The Ministry of Finance will hold a meeting later on Wednesday with primary dealers.

The ministry is considering shortening the period between the auction and the issuance of some JGBs, sources with knowledge of the matter said.

The move could reduce risk for bond brokers who now have to hold a large number of bonds over the interim period between auction and issuance, before which they cannot sell them to the central bank.

Separately, government sources told Reuters that the MOF was considering raising the minimum bidding requirement of primary dealers in government bond auctions to ensure the stability of the bond market. ($1 = 111.5200 yen) (Reporting by Tokyo markets team; Editing by Biju Dwarakanath)

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