JGBs drop, taking cue from stocks despite decent 10-yr sale

TOKYO Thu Oct 4, 2012 12:39am EDT

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TOKYO Oct 4 (Reuters) - Japanese government bonds slipped on Thursday, with benchmark yields moving away from an eight-week low touched earlier this week, as the impact of stronger stocks offset any benefit from firm demand at a 10-year sale.

The Ministry of Finance offered 2.3 trillion yen ($29.3 billion) of reopened 10-year notes with a coupon of 0.80 percent, matching that of the previous three sales.

It garnered a lowest accepted price of 100.28 to yield 0.769 percent, with the bid-to-cover ratio rising to 3.4 from the previous sale's 2.84.

"The result was as expected, and the market is more or less steady, even after the auction result came out. Some extra hedge selling, plus firmer stocks and a weaker yen in the FX market encouraged some profit taking on JGBs," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

"There are some position adjustments before the employment report in the U.S. to be out tomorrow night, but I don't think the market will extend losses. I think there's still good buy-on-dip demand for cash JGBs," she added.

The Nikkei extended early gains and was up more than 1 percent in afternoon trading.

In cash bond trading, the 10-year yield edged up one basis point to 0.775 percent, moving away from the 0.755 percent level touched on Tuesday and Wednesday, which was its lowest level since Aug. 7.

Ten-year JGB futures shed 0.15 point to 144.10, up from a post-auction low of 144.07 but below their morning session close at 144.15. Futures touched an eight-week high of 144.33 on Wednesday.

Selling weighed on the superlong sector as well in the afternoon, with the 20-year yield and the 30-year yield both adding a basis point to 1.660 percent and 1.915 percent, respectively.

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