JGBs rise after 10-year auction proceeds smoothly

Wed May 1, 2013 3:01am EDT

Related Topics

* 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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