JGBs skid, tracking Treasuries; 10-yr yield at 3 1/2-month high

Thu Jan 3, 2013 9:42pm EST

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* 10-yr futures touch lowest intraday level since May
    * 30-yr yields touch highest level in over a year

    By Lisa Twaronite
    TOKYO, Jan 4 (Reuters) - Japanese government bonds skidded
on their first trading day of 2013 on Friday, with benchmark
yields hitting a 3 1/2-month high in line with surging Japanese
equities and a drop in U.S. Treasuries prices after some Federal
Reserve officials expressed wariness about continuing to expand
its bond buying.    
    The 10-year JGB yield gained 3.5 basis points
to 0.830 percent, its highest level since Sept. 13. Benchmark
yields dropped as low as 0.685 percent as recently as Dec. 6,
their lowest since June 2003.
    Tokyo markets reopened after the long New Year's holiday
with expectations that 2013 will bring more fiscal and monetary
stimulus measures in Japan, with the U.S. outlook less clear
after release of the minutes of the Fed's December meeting.
    While the Fed looks set to continue buying bonds, some
policymakers are reticent about further increasing its $2.9
trillion balance sheet. 
    The Fed minutes led to a sell-off in U.S. Treasuries that
sent benchmark yields to 8-month highs. 
    "Japan was off for a few days and now has to catch up to
some big overseas moves," said Ayako Sera, market economist at
Sumitomo Trust and Banking.
    "With stocks soaring so much today on the weaker yen, it is
not surprising that there isn't much buying in JGBs," she said.
    While the U.S. "fiscal cliff" budget impasse was resolved
earlier this week, a looming showdown on an increase in the U.S.
debt ceiling could support bond prices going forward, she added.
    The deal to avert the fiscal cliff covered only taxes and
delayed decisions on expenditures until March 1. 
    Still, Japan's Nikkei share average added 2.9
percent to a 22-month high on its first trading day of 2013 as
the yen's drop against the dollar to its weakest level since
July 2010 lifted exporters. 
    The benchmark 10-year JGB futures contract ended
morning trade down 0.28 point at 143.37, after falling as low as
143.20, their lowest since late May. Futures moved further away
from Dec. 7's intraday high of 145.26, which was the highest
level ever for a 10-year JGB futures contract.        
    Yields on 20-year bonds gained 2.5 basis
points to 1.785 percent, after earlier rising as high as 1.790 
percent, their highest since early April. 
    Yields on 30-year bonds added 1.5 basis
points to 1.990 percent after touching 1.995 percent, their
highest since December 2011.
    Longer maturities have come under pressure over the past
several weeks, on concerns about the aggressively reflationary
policies of the new Japanese government led by Prime Minister
Shinzo Abe.
    Abe has called on the Bank of Japan to set a 2 percent
inflation target, and has also vowed to select someone who
shares his views on drastic stimulus to succeed BOJ Governor
Masaaki Shirakawa when his term expires in April.
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