JGBs rise after 10-year auction proceeds smoothly
* 10-yr yields remain in last week's narrow range * 10-yr futures end close to session high By Lisa Twaronite TOKYO, May 1 (Reuters) - Japanese government bond prices rose on Wednesday, after a 10-year sale proceeded smoothly in a holiday-shortened trading week that some had feared could affect auction liquidity. The Ministry of Finance offered 2.4 trillion yen ($24.64 billion) of 10-year notes with a coupon of 0.600 percent, the second reopening of issue number 328. The notes sold at a lowest price of 100.0, better than expectations, and drew bids of 3.71 times the amount offered, up from the previous sale's bid-to-cover ratio of 3.22 times. The tail between the average and lowest accepted prices shrank to 0.02 from 0.05 at last month's offering, indicating solid demand. "I think the 10-year sector prepared well going into the auction, so I think the auction was pretty solid," said Tadashi Matsukawa, head of fixed-income at Pinebridge Investments in Tokyo. "I am not so worried about the 10-year sector at this moment, because the BOJ is going to be constantly buying this sector," he added. "I am not seeing a dramatic rally from here, but I think we may see prices go higher and yields grind lower, maybe to a range of 0.5 to 0.6." The 10-year yield shed 1.5 basis points to 0.590 percent after dipping as low as 0.585 percent after the auction results, but still staying within last week's relatively narrow trading range between 0.575 percent and 0.610 percent. Ten-year futures finished just two ticks shy of their session high, gaining 0.22 point to 144.75. Volume was the highest in a week, though still light at 21,667 contracts. Tokyo markets will be closed on May 3 and May 6 for a string of holidays known as Golden Week. Investors also awaited the outcome of the U.S. Federal Reserve's two-day policy meeting later in the day. The Fed is expected to reiterate its commitment to keep buying bonds aggressively for most of 2013. The 20-year JGB yield shed 2 basis points to 1.465 percent and the 30-year yield dropped 1 basis point to 1.585 percent. Still, market participants remained wary about the superlong tenor. "We need more evidence of Japanese life insurers' purchases, before we can determine the trend for superlong yields," said a fixed-income fund manager at a Japanese asset management firm. Although JGB market volatility has recently calmed, 10-year JGBs, which do not have any dominant buyers, might remain unstable until moves in short-term to intermediate JGBs and superlong JGBs become more predictable, strategists at Bank of America Merrill Lynch said in a note to clients. The JBG market was roiled by volatility in the immediate weeks that followed the Bank of Japan's April 4 announcement of a radical monetary expansion campaign to end years of nagging deflation.
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