Benchmark JGBs erase gains after unimpressive 30-year sale

Thu Jan 10, 2013 2:31am EST

Related Topics

* MOF releases slightly amended auction results after sale
    * Demand dull at 30-year auction amid issuance uncertainty
    * MOF talks with primary dealers on Thurs on issuance

    By Lisa Twaronite
    TOKYO, Jan 10 (Reuters) - Benchmark Japanese government
bonds were slightly lower on Thursday, giving up early gains
after the results of a 30-year sale showed lacklustre demand
that failed to impress investors.
    The auction of 700 billion yen ($8 billion) of 30-year
bonds, which was followed within half an hour by a highly
unusual Ministry of Finance announcement of slightly amended
results, found the market jittery about supply concerns as a new
government proceeds with aggressive economic stimulus.
    The sale, a reopening of the No.37 issue with a 1.9 percent
coupon, drew bids that were 3.52 times the amount offered, down
from the previous sale's bid-to-cover ratio of 4.08. The MOF's
original announcement had indicated the ratio was 3.53.
    "It was just a minor correction," said Maki Shimizu, senior
strategist at Citigroup Global Markets Japan.
    But the timing of the small glitch was potentially
embarrassing for the ministry, coming on one of the days of
regular talks with JGB investors and primary dealers on how it
will allocate this year's additional issuance of JGBs.
    "The focus will be where the MOF will increase issuance,"
Shimizu said. "That's the kind of market temperature we have to
check from today's meeting."
    The government will sell around 6 trillion yen more in
government bonds than it originally planned for the fiscal year
to end-March, a government source told Reuters on Wednesday, as
it prepares an extra budget with economic stimulus spending.
 
    The government is set to approve the 13.1 trillion yen extra
budget next Tuesday. Around 10 trillion yen will be spent on
public works and incentives to spur corporate investment.
    In cash trading, the superlong maturities clung to some of
their early gains after the sale, although they pared them
considerably.
    Yields on 30-year bonds fell half a basis
point to 2.00 percent, a threshold they exceeded on Tuesday for
the first time since December 2011. The 30-year yield fell as
low as 1.990 percent during intraday trade.
    The yield on the 20-year bond was down half a
basis point at 1.785 percent, but off its intraday low of 1.775
percent.
    Despite the backdrop of uncertainty about new supply, market
participants' expectations of more easing this month from the
Bank of Japan are likely to prevent sharp losses. 
    The BOJ will consider easing monetary policy again at its
Jan. 21-22 meeting, likely by increasing its 101 trillion yen
asset buying and lending programme, according to sources
familiar with the central bank's thinking. 
    On Thursday, the 10-year JGB yield rose half
a basis point to 0.825 percent, moving back toward a 4-1/2 month
high of 0.840 percent hit on Monday and away from a session low
of 0.815 percent.
    The benchmark 10-year JGB futures contract ended up
0.03 point at 143.46.
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