JGBs slip ahead of auction, coupon rate set at 9 1/2-yr low

TOKYO Mon Dec 3, 2012 9:27pm EST

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TOKYO Dec 4 (Reuters) - Japanese government bond prices fell on Tuesday, with the benchmark futures breaking a six-day winning streak, as market players tried to make room for a 10-year bond auction.

* The Ministry of Finance set the coupon rate on its 2.3 trillion yen ($28 billion) offer of 10-year bonds at 0.7 percent, the lowest level for 10-year paper since June 2003.

* The 10-year JGB futures fell fell 0.08 point to 144.79. The contract had hit a 9 1/2-year high of 144.91 on Monday as JGBs have been supported by concerns that the Japanese economy may be slipping into a recession.

* With the exception of the longest maturities, the market have been bolstered by expectations that a likely change in the Japanese government in the Dec. 16 election could lead to more political pressure on the Bank of Japan to take more aggressive easing steps.

* Opposition leader Shinzo Abe, a front-runner to become prime minister after the Dec 16. election, has called for unlimited easing to achieve inflation of two percent.

* The 10-year JGB yield ticked up 0.5 basis point to 0.705 percent, still not far from 9 1/2-year low of 0.695 percent hit last week.

* "Superlong" bonds such as 20- and 30-year bonds, underperformed, as speculation of aggressive monetary easing discourages investors from buying these maturities.

* The 20-year yield rose 1.0 basis point to 1.685 percent , with the yield spreads between 10- and 20-year yields rising to 98 basis points, near record high of 101 basis points in hit in June 1999.

* "If today's auction doesn't go well, there will be more pressure on 30-year bonds, ahead of the 30-year bond auction on Thursday," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

* JGBs also took cues from softness in U.S. Treasuries on Monday due to hopes of a success in Greece's debt buy-back and data showing a modest recovery in the Chinese manufacturing sector.

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