JGBs drop, track Treasuries on signs of US 'fiscal cliff' deal

TOKYO Tue Dec 18, 2012 10:07pm EST

Related Topics

TOKYO Dec 19 (Reuters) - Japanese government bond prices dropped on Wednesday with benchmark yields rising to a nearly 7-week high, tracking U.S. Treasury yields which rose as signs of progress in resolving the U.S. "fiscal cliff" budget crisis sapped demand for safe-haven fixed income assets.

* Negotiations in Washington to avert tax hikes and spending cuts appeared to be progressing as House of Representatives Speaker John Boehner kept the support of his Republican colleagues for compromises in talks with President Barack Obama.

* "JGBs have moved on domestic factors recently, but they've also tracked the uptrend in yields on U.S. Treasuries, particularly as Japanese equities have soared with the 'risk-on' mood," said a fixed-income fund manager at a Japanese asset management firm.

* Japan's Nikkei stock average rose above the 10,000 mark for the first time since early April on Wednesday.

* Yields on 10-year JGBs added 1.5 basis points to 0.770 percent after earlier rising to 0.775 percent, their highest level since Nov. 2.

* The 10-year JGB futures contract ended morning trade down 0.05 point at 143.94, after falling as low as 143.70, its lowest since Sept. 20.

* The Bank of Japan on Wednesday began its regular two-day policy meeting at which sources said it will take further easing steps. It will also consider adopting a 2 percent inflation target no later than in January in response to calls from next Prime Minister Shinzo Abe for the central bank to make stronger efforts to beat deflation.

Fourteen of 19 economists polled by Reuters last week said they expected the BOJ to ease, most likely by increasing its 91 trillion yen ($1 trillion) asset buying and lending programme by up to 10 trillion yen.

* Abe's Liberal Democratic Party swept to power in Sunday's lower house election after he called for massive fiscal spending to revive the economy and "unlimited" monetary easing to achieve price rises.

* "As JGB markets have now discounted the election results to a good extent, we should be aware of any signs that the yield uptrend may have reached an end at 10-year yields of around 0.75 percent-0.80 percent," said Chotaro Morita, chief fixed income strategist at Barclays, in a note to clients.

* An auction on Tuesday of 1.2 trillion yen ($14.3 billion) 20-year government bonds met tepid demand, as investors shunned the superlong sector on concerns that Abe's policies will lead to inflation.

* Yields on 20-year bonds rose half a basis point to 1.740 percent after earlier rising to 1.750 percent, their highest since early April.

* On the data front, Japan's exports fell in November from a year earlier to mark the sixth straight month of declines, bolstering the case for further monetary stimulus this week.

FILED UNDER: