JGBs extend losses as results of BOJ buying disappoint

Fri Apr 12, 2013 3:32am EDT

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* 10-yr yield drops a point from morning high in volatile trade

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TOKYO, April 12 (Reuters) - Japanese government bond prices extended losses on Friday and the superlong sector erased gains after the results of the Bank of Japan's latest purchase operations fell short of market expectations, triggering a sharp drop in futures.

Ten-year JGB futures ended down one point at 143.73, down from an intraday high of 144.87. The Tokyo Stock Exchange briefly halted trading of futures in the evening session after excessive moves.

"Market expectations heightened for the BOJ operations in the morning, and then, in the afternoon, the results came out, and were not as good as expected, and then the market sold off," said Maki Shimizu, senior strategist at Citigroup in Tokyo.

BOJ Governor Haruhiko Kuroda said in a speech on Friday that the the BOJ's unprecedented scale of government bond purchases could impact the bond market, but added that the central bank is confident that it can smoothly buy the debt it needs to fulfill its new policy mandate.

"We just need time to digest this new scheme," Shimizu said. "Kuroda has mentioned that the market will calm down in the coming days."

For now, though, volatile moves continued. The yield on benchmark 10-year bonds rose 8.5 basis points to 0.635 percent, a whole point above its session low of 0.535 percent hit in the morning.

The 10-year yield remained far above its record low of 0.315 percent hit a week ago, one day after the BOJ unveiled its radical monetary overhaul that will pump about $1.4 trillion into the economy in less than two years.

"It is really hard to judge where values should be, since the BOJ's programme is in its early days," said a fixed-income fund manager at a European asset management firm in Tokyo.

"Some people have to buy now even in volatile conditions, but investors with the leeway to wait are choosing to sit on the sidelines," he said.

The BOJ plans to buy 3.4 trillion yen of bonds in the 5- to 10-year zone each month, which would top the Ministry of Finance's monthly offering of 2.4 trillion yen in 10-year bonds.

"Some are worried about liquidity, with the BOJ buying so much, and that is likely contributing to some of the selling," said a fixed-income fund manager at a Japanese asset management firm in Tokyo.

Short- and medium-term maturities also extended losses despite the BOJ's assurance on Thursday that it has no plans to lower its purchases of short-term debt under the new programme, after it met with market participants to hear their views on its operations.

The five-year yield added 5 basis points to 0.255 percent, moving back toward a one-year high in the previous session of 0.320 percent.

The 30-year yield added 5 basis points to 1.555 percent, up from a morning low of 1.465 percent, and the 20-year yield rose 4.5 basis points to 1.455 percent from a low of 1.375 percent.

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