JGBs soar, benchmark yield plunges to record low after BOJ eases

Thu Apr 4, 2013 4:41am EDT

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* 10-yr yield touches record low of 0.425 pct
    * 10-yr futures jump to intraday record high
    * Superlong yields also drop to near-decade lows

    TOKYO, April 4 (Reuters) - Japanese government bond futures
soared to a record high on Thursday and the benchmark yield
plunged to a record low after the Bank of Japan shocked markets
by dramatically easing and radically overhauling its monetary
policy.
    Superlong JGB yields also skidded to their lowest levels in
nearly a decade after the central bank said it will adopt a new
balance sheet target and pledged to double its JGB holdings in
two years in a bid to arrest deflation. 
    The 10-year yield dropped 12.5 basis points
to a record low of 0.425 percent. It was last down 9 basis
points at 0.460 percent.
    "The market was caught off guard," said Tadashi Matsukawa,
head of fixed-income at Pinebridge Investments in Tokyo, who
said many investors had held off buying early in the session on
expectations that they would be able to buy on dips after the
decision was announced.
    "Today was like panic buying, and dealers had to cover at
very expensive levels," he said.
    Ten-year JGB futures ended one tick shy of their
intraday all-time record peak, gaining 0.60 point to 146.04.
    Longer maturities also skyrocketed after the BOJ said it
will combine two bond-buying schemes, its asset-buying and
lending programme and the "rinban" bond-buying market operation,
to buy JGBs with all maturities across the yield curve.
    Monthly JGB purchases under the new program will total about
70 percent of newly issued debt, but are not expected to distort
markets, BOJ Governor Haruhiko Kuroda said at a news conference
after his debut policy-setting meeting.    
    The meeting was the first chaired by Kuroda since he assumed
the BOJ's helm last month with a vow to whip deflation, and the
decisions were made by unanimous vote. 
     
 
        
    "We are still trying to scrutinize how the purchase will be
done, but I think the average of seven years to maturity,
depending on the market outstanding, will be centered on the
10-year sector, but with decent size purchases in the superlong
tenor as well," said Maki Shimizu, senior strategist at
Citigroup in Tokyo. 
    "That is why the market is rallying like this," she added.
    The 20-year yield tumbled 27 basis points to
1.120 percent, its sharpest one-day move since July 1999, while
the 30-year yield also shed 27 basis points, its
biggest move in about a decade, to 1.250 percent, after falling
as low as 1.220 percent.
    The 40-year JGB, an illiquid instrument, was said to be
untraded and its yield indicated down 30.5 basis points at 1.280
percent.
    The BOJ said it will go back to open-ended asset purchases,
and buy over 7 trillion yen ($75 billion) of long-term JGBs each
month, so that the balance of its bond holdings will increase at
an annual pace of 50 trillion yen.
    Even before Japan's central banks sent yields into a
tailspin, concerns about the U.S. economy had bolstered bond
market sentiment. Data overnight showed weaker-than-expected
private sector hiring last month and a services sector index
fell short of forecasts. 
    Rising tensions on the Korean peninsula further underpinned
demand for safe-haven fixed income assets. North Korea has moved
what appears to be a mid-range Musudan missile to its east
coast, South Korea's Yonhap news agency said on Thursday.
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