JGBs rise, taking cue from weaker risk assets

Thu Sep 20, 2012 3:00am EDT

Related Topics

* 10-year futures extend rise as stocks skid

* BOJ easing underpins sentiment, raises hopes of more

By Lisa Twaronite

TOKYO, Sept 20 (Reuters) - Japanese government bonds rose on Thursday, getting a lift from weaker stocks that prompted investors to seek safer assets.

The Nikkei stock average skidded 1.6 percent as Chinese manufacturing data raised fears about slowing growth in Japan's biggest trading partner.

Bond market sentiment was also underpinned by the Bank of Japan's move on Wednesday to ease policy. Although the immediate market impact of the BOJ's announcement quickly faded, some market participants hope the central bank will follow with more stimulus steps.

The BOJ on Wednesday said it will increase its asset buying and loan programme by 10 trillion yen to 80 trillion yen, with the increase aimed at government bonds and treasury discount bills.

The central bank also extended the deadline for meeting the new overall target for asset purchases by six months, through December 2013, with all of the additional purchases to be made after December 2012. It also abandoned a rule limiting bond buying to debt yielding 0.1 percent or higher.

"I don't see so much aggressiveness in this fund purchase, so some market participants think the BOJ's next move will come at its next meeting in October," said Tadashi Matsukawa, head of Japan fixed income at Pinebridge Investments in Tokyo.

"They're doing more aggressive easing than the Fed in a sense, because they're buying riskier assets," he added. "But in the magnitude and the duration of purchases, you can say the Fed is more aggressive than the BOJ."

The BOJ's asset purchase programme includes purchases of exchange-traded funds and real estate investment trusts, although the bank did not increase purchases of those assets in its latest easing move.

The 10-year JGB futures contract for December ended up 0.23 point at 143.80.

The yield on the benchmark 10-year cash bond fell 1.5 basis points to 0.800 percent, edging back toward a nine-year low of 0.720 percent hit in July. The benchmark yield has traded in a relatively narrow range this month, between 0.775 percent and 0.835 percent.

The 20-year bond yield lost 1.5 basis points to 1.680 percent and the 30-year yield shed half a basis point to 1.940 percent after rising to a more than five-month high of 1.950 percent.

The spread between 10- and 20-year yields stood at 0.880, edging down from 0.885 on Wednesday on a last-traded basis, but was still around its highest level since November 2010.

"With the curve so steep recently, we think it's almost time to put on some 10/20-year flatteners, but except for that, there're not many trades we're thinking about right now," said a fixed-income fund manager at a European asset management firm in Tokyo.

"Yields at the front end are held in place by the BOJ policy and don't move much," he said.

Data from the Ministry of Finance on Thursday showed the impact of the slowing global economy on Japan, with exports falling 5.8 percent in August from a year earlier. That helped push its trade balance to a deficit of 754.1 billion yen and raised fears about Japan's ability to sustain its debt in the long term.

But separate BOJ data released on Thursday showed overseas investors held a record 8.7 percent of outstanding Japanese government debt at the end of the second quarter, totaling 82 trillion yen ($1.05 trillion). That was up 20 percent from the same period a year earlier, as Europe's debt crisis prompted more investors to diversify into what they perceived to be safer assets.

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