JGBs firm as stocks sink, BOJ move eyed; 10-yr yield at 4-week low

Wed Jan 16, 2013 2:37am EST

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* Decent demand at 5-yr sale, with bid-to-cover ratio of
3.44
    * Superlong tenor outperforms as life insurers said to buy

    By Lisa Twaronite
    TOKYO, Jan 16 (Reuters) - Japanese government bond prices
rose on Wednesday, with benchmark yields falling to a four-week
low, as a sharp pullback in Japanese stocks and heightening
anticipation of more Bank of Japan stimulus lifted sentiment.
    The improved tone piqued demand at a sale of five-year
notes, and prompted life insurance companies to seek out
bargains in the recently underperforming superlong zone.
    "With expectations of BOJ easing again, the strength in JGBs
might continue through next week," said Tomohiro Miyasaka, an
analyst at Credit Suisse in Tokyo.     
    Sources close to the central bank said it would consider
expanding stimulus again and double its inflation target to 2
percent at its Jan. 21-22 meeting.    
    The 10-year JGB yield fell 1.5 basis points
to 0.750 percent, its lowest since Dec. 18, moving further away
from a 4-1/2-month high of 0.840 percent touched several times
last week.    
    The benchmark 10-year JGB futures contract ended up
0.17 point at 144.31 after rising as far as 144.35, its highest
since Dec. 14, fuelled by a drop in equities.
    
    
    SUPERLONGS OUTPERFORM
    The Nikkei share average fell 2.6 percent on
Wednesday, its biggest one-day drop in eight months, toppling
from a nearly three-year high hit the day before as a rebound in
the yen prompted investors to take profits on exporters' shares.
    The superlong sector outperformed, with the yield on the
20-year bond down 3 basis points at 1.730 percent
and the 30-year bond yield down 4 basis points at
1.960 percent.  
    On Friday, the 20-year yield rose as high as 1.805 percent,
its highest since April 2012, and the 30-year yield rose as high
as 2.025 percent, its highest since August 2011. 
    The superlongs received a lift after the government on
Tuesday announced its additional bond issuance plans for the
fiscal year to end-March to fund further economic stimulus.
    "There is less fear about additional issuance now," said a
fixed-income fund manager at Japanese asset management firm in
Tokyo.
    The finance ministry will issue an additional 300 billion
yen ($3.4 billion) a month in government debt next month and in
March to fund stimulus spending, which is a smaller increase
than the 700 billion to 800 billion yen some market participants
had estimated.
    On Wednesday, the Ministry of Finance offered 2.5 trillion
yen of five-year notes, reopening issue number 107 with a coupon
of 0.2 percent, matching the coupon of the past eight sales. 
    The notes sold at a lowest price of 100.20, slightly above
market expectations of 100.19. The sale drew bids of 3.44 times
the amount offered, down from the previous sale's bid-to-cover
ratio of 3.54, but still indicating strong demand, and the tail
between the average and lowest accepted prices was 0.01,
matching last month's offering.
    The five-year JGB yield was flat at 0.160
percent, after it fell as low as 0.150 percent on Friday, its
lowest since Dec. 6.
    "The five-year note's moves on Friday took some investors by
surprise, and some believe it was overdone, although with the
BOJ supporting the short end, there is little risk in holding
five-years," the Tokyo fixed-income fund manager said.
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