JGBs slip, taking cue from weaker yen and stronger stocks

Mon Apr 22, 2013 2:47am EDT

Related Topics

* Yield curve steepens as investors take profits in
superlongs
    * 10-yr futures end down, one tick above session low
    * PIMCO: 'greatest comfort' in JGBs with maturities under 10
years

    By Lisa Twaronite
    TOKYO, April 22 (Reuters) - Japanese government bonds
slipped on Monday, taking their cue from a weaker yen and
stronger equities markets, with the superlong sector
underperforming as investors took profits on Friday's gains.
    The yield curve steepened as investors unwound last week's
gains made after the Bank of Japan's operational tweaks and
satisfactory 5-year and 20-year sales brought calm to a market
roiled by the central bank's massive stimulus unveiled on April
4.
    "I think Friday's move was a little bit too much, and life
insurance companies are probably looking to buy the 20-year at
1.5 percent, and we have a 30- and 40-year auctions next month,
so probably a lot of people want to stay away from those," said
Tadashi Matsukawa, head of fixed-income at Pinebridge
Investments in Tokyo.    
    With a 10-year auction next Wednesday, "you don't want to
chase that sector, either," he added.
    The yield on benchmark 10-year bonds added 3
basis point to 0.610 percent. It moved further away from its
record low of 0.315 percent struck on April 5, the day after the
BOJ shocked markets with a pledge to double its bond holdings in
two years to help it meet the goal of 2 percent inflation.
    Japan's central bank governor and finance minister
reiterated on Monday that the Group of 20 countries accepted
that Japan's monetary easing is not aimed at weakening the yen.
 
    That helped the yen start the new week near a
four-year low versus the dollar, not far from the 100-yen level
that it has not crossed since April 2009. The weaker yen in turn
helped push the Nikkei share average close to a
five-year high.
  
    
    The 10-year futures contract ended down 0.24 point
at 144.34, a tick above its session low.
    The 20-year yield added 4.5 basis points to
1.475 percent, while the 30-year bond yield added
6 basis points in thin trade to 1.605 percent, still shy of a
then-six-week high of 1.645 percent touched on Wednesday.
    Market participants awaited a BOJ meeting on Friday, at
which it will update its forecasts. Investors will be watching
whether BOJ Governor Haruhiko Kuroda's two-year time frame to
attain its 2 percent inflation target becomes an official
forecast.  
    "If the BOJ's easing steps work, we will eventually have to
start pricing in inflation at the longer end, but for now, ahead
of Golden Week, big market moves aren't likely," said a
fixed-income fund manager at a Japanese trust bank. (Golden Week
is a series of public holidays from between April 29 to May 6.)
    A portfolio manager at PIMCO said the world's biggest bond
investor's "greatest comfort" in its JGB exposure is with bonds
with maturities under 10 years, particularly under seven years,
which it sees as anchored by the BOJ buying programme.
  
   "And we think the longer-end is more vulnerable to potential
success of the reflation policy," Ramin Toloui, co-head of
PIMCO's global emerging markets portfolio management team, told
Reuters.  
    In addition to the BOJ, market participants also awaited
investment plans for this fiscal year through March 2014 from
several major Japanese life insurers.
    Domestic life insurers hold $3.4 trillion in assets, and the
BOJ's aggressive stimulus is likely to lead them to shift some
of their money into foreign bonds. But the head of Japan's life
insurance industry group said on Friday that such a shift would
likely be temporary, with JGB yields likely to move up in the
medium term as a result of the BOJ's measures.
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