Benchmark JGBs firm as Fed policy outcome awaited

Wed Dec 12, 2012 2:07am EST

Related Topics

* Fed easing will add to pressure on BOJ to ease next week
    * 20-yr sector underperforms ahead of next week's auction

    By Lisa Twaronite
    TOKYO, Dec 12 (Reuters) - Benchmark Japanese government
bonds firmed slightly on Wednesday with yields creeping towards
last week's 9-1/2-year low as investors await the outcome of the
U.S. Federal Reserve's policy meeting for clues to how the Bank
of Japan may act next week.
    Prices of 20-year bonds dipped, as investors prepared for
next week's sale of that maturity. 
    The Federal Reserve is expected to announce a new round of
Treasury securities purchases at the conclusion of its two-day
meeting on Wednesday. Half the respondents in a Reuters poll on
Friday said they expected $45 billion per month. 
    "I think people expect the Fed to increase their purchases
in Treasuries, which is going to lead to balance sheet
expansion, in which case the BOJ has to act, if they're going to
play catch-up with the Fed," said Shogo Fujita, chief Japan bond
strategist at Bank of America Merrill Lynch.
    "If they don't do it this month, it'll be next month, if
they do it this month, they'll probably have to do it again in
February," he said, referring to the BOJ, which meets Dec.
19-20.
    The BOJ will most likely increase its asset-buying and
lending programme, currently at 91 trillion yen ($1.1 trillion),
by another 5-10 trillion yen, sources have said. 
    
       
    Japan's election on Sunday is also likely to set the stage
for more pressure on the BOJ to take further easing steps. The
opposition Liberal Democratic Party is likely to secure a
majority in Sunday's general election and push the central bank
to do more.        
    "It is unlikely that there will be any big surprise from the
election results, so the key event next week will be the BOJ
meeting after it," said a fixed-income fund manager at a
Japanese asset management firm.
    Yields on 10-year JGBs slipped half a basis
point to 0.695 percent, moving closer to 0.685 percent touched
last week, their lowest since June 2003. 
    Yields on benchmark cash bonds ended 2011 at 0.980 percent.
    Ten-year JGB futures for March ended up 0.05 point
at 144.70 point.    
    Yields on 30-year JGBs were flat at 1.895
percent, while the 20-year yield added half a
basis point to 1.660 percent. 
    The Ministry of Finance will sell 1.2 trillion yen of
20-year debt on Dec. 18.
    The ministry will also offer 2.5 trillion yen of 5-year
notes on Thursday. The 5-year yield was flat on
Wednesday at 0.16 percent.
    On the data front, Japan's core machinery orders rose for
the first time in three months in October, but fell short of
forecasts. 
    The JGB market showed no reaction to news that a rocket
launched by North Korea on Wednesday appeared to have passed
over Okinawa.
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