Benchmark JGBs resilient on BOJ hopes; superlongs outperform

Mon Feb 18, 2013 2:33am EST

Related Topics

* 10-year JGB erases losses; yield steady in recent range

* 5-year yield creeps up before Tuesday's auction

* Bargain hunting pushes 30-year yield to 2-month low

TOKYO, Feb 18 (Reuters) - Benchmark Japanese government bonds were steady on Monday, erasing earlier losses after the Bank of Japan resumed buying bonds under its asset purchase programme, while bargain hunting in the superlong tenor sent the 30-year yield to a two-month low.

Expectations of more easing steps ahead by the central bank underpinned bond market sentiment and helped benchmark JGBs shed earlier losses made as some investors rebalanced into stocks, which rose on renewed yen depreciation.

The BOJ on Monday bought about 300 billion yen ($3.2 billion) of JGBs with up to three years left until maturity in its asset purchase programme.

"I think the BOJ's JGB buying operation, which had not been held for a while, came and the result was reasonably stable, which helped the market to recoup earlier losses," said Naomi Muguruma, a senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

"I think overall, the market lacks strong direction ahead of two auctions scheduled this week, and also market participants would love to see how long the yen weakening and the stock rally trend will continue," she said.

The yield on 10-year bonds was flat at 0.745 percent after earlier rising as high as 0.755 percent. The benchmark yield has doggedly stuck in its recent range between a then-six week low of 0.720 percent hit on Jan. 25 and a then-two week high of 0.805 percent touched on Feb. 4.

Ten-year JGB futures ended up 0.04 point at 144.27, after falling as low as 144.09 in the morning session.

The 30-year yield was down 2 basis points at 1.915 percent, after earlier dropping as low as 1.910 percent, its lowest level since Dec. 13. Life insurers were said to be buying, although trading activity was thin.

The Nikkei stock average rose 2.1 percent, while the dollar rose 0.5 percent to 93.94 yen, after the Group of 20 nations did not cite Japan over policies that have weakened the yen. Japan viewed this as tacit approval of its anti-deflation policies.

"The G20 didn't single out Japan, so we're seeing a weaker yen and stronger stocks," said a fixed-income fund manager at a Japanese trust bank.

"But expectations of future easing steps by the Bank of Japan continue to keep JGBs from selling off too much, and kept the long yield in its recent ranges," he added.

The 20-year yield slipped half a basis point to 1.735 percent, its lowest since Jan. 24, though gains in that tenor were limited before an auction on Thursday.

The five-year yield added half a basis point to 0.145 percent, moving away from its record low of 0.135 percent hit this month, ahead of a sale in that sector on Tuesday.

The Ministry of Finance will offer 2.7 trillion yen of five-year notes, increasing the monthly issue amount by 200 billion yen both this month and next, to fund the government's extra budget.

The five-year yield skidded to its record low as investors bet the BOJ would scrap paying interest on banks' excess reserves as part of future policy steps aimed at beating deflation.

Japanese Prime Minister Shinzo Abe told parliament on Monday that buying foreign bonds could be among future policy options for the central bank, and that the government must consider revising the BOJ law guaranteeing the central bank's independence if the BOJ cannot achieve its 2 percent inflation target.

Former top financial bureaucrat Toshiro Muto is the leading candidate to become Japan's next central bank governor with Abe to pick a nominee as early as this week, sources close to the process told Reuters.

A weekly gauge of sentiment in the Japanese government bond market was steady but remained in negative territory for a seventh straight week, the latest Thomson Reuters poll showed on Monday.

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