Longer JGBs outperform after BOJ tweaks purchase scheme

Fri Apr 19, 2013 3:02am EDT

Related Topics

* Yield curve flattens a day after BOJ adjusts its operations plan

* Decent demand at 20-yr sale on Thurs also helps calm market

* Investors await BOJ inflation forecast next week

TOKYO, April 19 (Reuters) - Superlong Japanese government bonds continued to outperform on Friday, flattening the yield curve after this week's smooth 20-year sale and as market participants welcomed the Bank of Japan's change to its bond-buying operations.

The BOJ said late on Thursday that it would increase the frequency of its JGB purchases to eight times a month from six, while keeping its planned total amount of monthly purchases at its initially announced 7.5 trillion yen ($76.36 billion).

"The market is a little more comfortable now, with some willing to recoup the positions they'd unwound over the past 10 days," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.

"I think what (the BOJ) wants is to kill volatility going forward, which is one reason why we haven't seen yields go lower, post a massive purchase programme announcement by the BOJ two weeks ago," he added.

The central bank also tweaked its purchase plans to a targeted range for monthly buying in each sector rather than from a specific target, which traders say will allow it more flexibility in its purchases in response to supply conditions.

On Friday, the BOJ offered to buy a total of 800 billion yen ($8.14 billion) worth of JGBs maturing in more than 5 years, consisting of 300 billion yen with more than 10 years left to maturity and 500 billion yen with 5 to 10 years left to maturity

The yield on benchmark 10-year bonds was flat at 0.585 percent after falling as low as 0.550 percent, while 10-year futures ended up 0.12 point at 144.58, after rising as high as 144.82 in the morning session.

The superlong sector outperformed, soothed by the previous session's sale of 1.2 trillion yen worth of 20-year debt.

The 20-year yield fell 6 basis points to 1.435 percent after earlier touching a one-week low of 1.415 percent, while the 30-year yield shed 8 basis points to 1.525 percent.

With the BOJ's operational changes and decent demand at Thursday's auction, some market participants said the recent volatility in the JGB market might have calmed down for now and Friday's bull-flattening trend could remain through next week.

"Yields are coming down on the long end, and we might not see any significant rise anywhere on the curve next week, ahead of Golden Week," said a fixed-income fund manager at a Japanese asset management firm.

Japanese markets will be closed on April 29, May 1, and May 3 for the Golden Week holidays.

Ahead of that, the BOJ will hold a policy meeting on April 26, at which it will update its forecasts. Market participants are waiting to see whether BOJ Governor Haruhiko Kuroda's two-year timeframe to attain its 2 percent inflation target becomes an official projection.

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