JGBs mostly higher; 20-year auction results awaited

TOKYO, April 18 Wed Apr 17, 2013 10:20pm EDT

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TOKYO, April 18 (Reuters) - Japanese government bond prices mostly rose on Thursday, getting a lift from a downturn in investors' appetite for risk but kept in check by wariness about this session's sale of 1.2 trillion yen worth of 20-year debt.

* The Ministry of Finance offered the newly issued bonds with a coupon of 1.5 percent, below the 1.6 percent coupon on the latest issue.

* Disappointing demand at a sale of 30-year bonds a week ago raised concerns that many investors were sidelined by recent volatile market conditions, after the Bank of Japan's radical monetary policy overhaul on April 4.

* "Until we have more clarity over the Bank of Japan's purchasing, JGB trade will remain volatile, and the kind of institutions who buy superlong debt will wait to buy," said a fixed-asset fund manager at a Japanese asset management firm.

* On Wednesday evening, the BOJ held its second meeting with JGB market participants to discuss its new monetary policy framework, under which it will double its bond purchases in two years.

A senior BOJ said after the meeting that the central bank will consider increasing the frequency of its purchases of long-term JGBs in response to dealers' concerns about market distortions.

* Strategists at Barclays Japan recommended a 10-year/20-year flattener going into today's auction.

"With the aggressive market moves since the April 4 [monetary policy meeting], realized volatility has almost tripled in the 20-year sector," the said in a note clients.

"Therefore, it is reasonable to assume a longer tail for today's 20-year JGB auction, and it is possible to establish flattener at reasonably cheap levels," they said.

* Yields on benchmark 10-year bonds were flat at 0.600 percent, while ten-year futures ended morning trade up 0.12 point at 144.21. Bonds benefitted from weaker stocks and commodities, which sagged on continuing concerns about global growth.

* The superlong sector fared well in morning trade, though volume was thin. The 30-year yield and the 20-year yield both fell 3.5 basis points to 1.610 percent and 1.485 percent respectively.

* Weekly data from the ministry of finance showed that Japanese investors did not seek overseas debt despite the recent domestic market volatility, with last week showing net selling of foreign bonds to the tune of 332 billion yen.

Expectations of a surge of Japanese cash into overseas debt has pushed down yields in many bond markets around the world.

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