JGBs mostly steady after 10-yr sale meets decent demand

Thu Oct 4, 2012 3:23am EDT

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* 10-yr auction results in line with expectations

* Demand for cash JGBs on dips - strategist

* BOJ likely to hold policy steady on Friday

By Lisa Twaronite

TOKYO, Oct 4 (Reuters) - Japan government bonds steadied on Thursday as firm demand at a 10-year sale gained the upper hand over stronger stocks.

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 sold 2.11 trillion yen, garnering 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 tail between the average and lowest accepted prices slightly widened to 0.02 from 0.01 at the previous sale.

"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.

Such dip-buying emerged in the recently battered superlong tenor, which also erased its losses in late afternoon.

"Some investors were holding off on buying longer maturities, but a few decided the time was right," said a fixed-income fund manager at a Japanese asset management firm.

The Nikkei snapped a four-session losing streak and added 0.9 percent after Republican candidate Mitt Romney appeared to come out on top over U.S. President Barack Obama in their first debate.

In cash bond trading, the 10-year yield was flat at 0.765 percent, moving away from an intraday high of 0.775 percent. Benchmark yields hit an eight-week low of 0.755 percent on Tuesday and Wednesday.

Ten-year JGB futures shed 0.08 point to 144.17, up from a post-auction low of 144.07 and finishing above their morning session close at 144.15. Futures touched an eight-week high of 144.33 on Wednesday.

The superlong sector erased losses in the afternoon, with the 20-year yield and the 30-year yield both flat at 1.650 percent and 1.905 percent, respectively, after both added a basis point earlier.

Market participants said moves were small ahead of a European Central Bank meeting and minutes from the Federal Reserve's September policy meeting later in the session, as well as the conclusion of the Bank of Japan's policy meeting and U.S. employment data on Friday.

The ECB is expected to hold interest rates steady as it awaits new details on the health of the euro zone economy and Spain's request for aid.

The BOJ is also expected to stay the course on policy as it gauges the effects of easing steps it took at last month's meeting.

The U.S. nonfarm payroll data is expected to show that employers added 113,000 jobs last month, while the unemployment rate is seen rising to 8.2 percent from August's 8.1 percent, according to economists polled by Reuters.

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