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JGBs firm, supported by demand at 30-year sale
October 12, 2016 / 7:21 AM / a year ago

JGBs firm, supported by demand at 30-year sale

TOKYO, Oct 12 (Reuters) - Japanese government bonds mostly firmed on Wednesday, shrugging off an overnight rise in U.S. Treasury yields and bolstered by decent demand at a 30-year auction.

The benchmark 10-year JGB yield edged down half a basis point (bp) to minus 0.060 percent, while December 10-year futures ended up 0.05 point at 151.86.

The yield curve flattened as prices in the superlong zone gained after the auction, with the 20-year JGB yield falling 1 bp to 0.385 percent, while the 30-year yield shed 2.5 bps to 0.500 percent.

In the previous session, U.S. Treasury yields rose to a four-month high in technical trading that squared the market with a fall in futures prices the day before when the cash market for bonds was closed for the Columbus Day holiday.

Bank of Japan board member Yutaka Harada said on Wednesday that the recent recovery of the 20-year JGB yield was healthy in the light of its past fall.

“Japan is quite distant from reaching the limits of monetary easing,” said Harada, who was one of the policy board members who voted in favour of the BOJ’s monetary shift last month to target yield curve control instead of the money supply.

But Harada said he saw no need to ease policy at the central bank’s next rate review, and BOJ Governor Haruhiko Kuroda did not directly refer to a need to achieve the bank’s inflation target quickly when he reiterated to parliament on Wednesday that he remains ready to expand stimulus.

That suggests that policymakers have raised the threshold for further easing after last month’s comprehensive policy review.

“It seems the market is settling down, after the BOJ’s announcement of yield targetting last month,” said Naomi Muguruma, senior strategist, Mitsubishi UFJ Morgan Stanley Securities.

“The market today is simply buying on dips after the JGB auction result,” she said. “Market investors are concerned about losing a chance to buy on dips for the second half of the fiscal year, with nowhere else to go for investment money as the curve is still underwater up to 10 years.”

The Ministry of Finance’s sale of 800 billion yen ($7.77 billion) of reopened 30-year JGBs with a 0.5 percent coupon produced a highest yield of 0.519 percent, with 28.4431 percent of the bids accepted at the lowest price of 99.50.

The sale drew bids of 3.64 times the amount offered, up from the previous sale’s bid-to-cover ratio of 3.13 times.

The tail between the average and lowest accepted prices modestly narrowed to 0.13, compared with that of last month’s offering at 0.18, indicating slightly stronger demand for the bonds.

$1 = 102.9000 yen Reporting by Tokyo markets team; Editing by Eric Meijer

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