JGBs mostly lower, with next week's 10-yr sale in focus

Fri Apr 26, 2013 3:33am EDT

Related Topics

* BOJ holds steady as expected; sets 2 percent inflation
outlook
    * Superlong tenor outperforms on light dip-buying

    By Lisa Twaronite and Dominic Lau
    TOKYO, April 26 (Reuters) - Japanese government bond prices
were mostly lower on Friday, as investors looked ahead to a
10-year debt offering during the holiday-shortened week ahead.
    The superlong tenor fared better as some investors bought on
dips, shrugging off the Bank of Japan's semi-annual economic and
price report that officially forecast 2 percent inflation during
the latter half of the coming three-year period covered by the
outlook.    
    "Never say never, but [the 2 percent outlook] seems
unlikely. Even if they only get 1 percent, that would be a good
result," said Neale Vincent, strategist at Nomura Securities in
Tokyo.
    Government data on Friday showed core consumer prices marked
their fifth straight month of annual drops in March even as a
recently weaker yen pushed up the cost of imported goods.
    Japan's central bank also reiterated that it will continue
its monetary easing as long as needed to achieve 2 percent
inflation in a stable manner. Earlier on Friday, at its regular
meeting, the BOJ held monetary policy steady as widely expected.
 
    Tokyo markets will be closed for holidays on April 29, and
then on May 3 and May 6. On May 1, the Ministry of Finance will
offer 2.4 trillion yen ($24.12 billion) of 10-year notes.
    "Even though the sale is coming in the middle of two long
holiday weekends, it should be decent with the BOJ buying so
much of that zone. However, there could be some
position-adjustment selling in other zones around the sale,"
said a fixed-income fund manager at a Japanese trust bank.
    The 10-year yield added 1 basis point to
0.590 percent, staying within this week's trading range of 0.575
to 0.610 percent. Ten-year futures finished down 0.08
point at 144.65 on light volume of 16,676 contracts.
    
  
    The 20-year JGB yield edged down 0.5 basis
point to 1.475 percent and the 30-year yield also
slipped by that amount to 1.605 percent.
    Volatility in the JGB market has eased lately after the BOJ
announced on April 18 that it would increase the frequency of
its government bond purchases to eight times a month from six
currently as part of its sweeping stimulus measures unveiled
earlier this month.    
    A fixed-income fund manager at a Japanese asset management
firm in Tokyo said life insurance companies looked set to keep
buying JGBs, despite speculation that the BOJ's massive stimulus
would pressure yields and push Japanese investors to seek higher
returns overseas.
    But life insurers' annual investment plans for this fiscal
year that began this month suggest that they will make no
drastic moves.    
    "The 10-year Treasury yield is almost the same as the
superlong sector in yen. If they take into account hedging costs
and asset risk, it's not a good investment," he said.
    "They have to invest in JGBs. They have no choice."
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