JGBs firm, with demand buoyed by weaker stock prices

Sun May 26, 2013 10:49pm EDT

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TOKYO, May 27 (Reuters) - Japanese government bonds began
the week on a firmer footing on Monday, as a continued drop in
stock prices supported demand for bonds. 
    
    * With U.S. and UK markets both closed for holidays on
Monday and the benchmark yield well off a 13-month high touched
last week, the JGB market was relatively calm on Monday, in
contrast to volatile sessions in recent weeks.  
    JGB trading has been turbulent since the Bank of Japan
unveiled its radical monetary policy overhaul on April 4.
    
    * The minutes of the BOJ's April 26 meeting released on
Monday showed a rift developing within the board over its
stimulus plan, as a few policymakers opposed targeting 2 percent
inflation in two years and called for more flexibility in
guiding monetary policy. 
    "We're still seeing potential instability in the bond
market," one member was quoted as saying.
        
    * On Monday, though, the Nikkei share average 
skidded more than 2 percent, moving away from 5-1/2-year high
hit last week. The yen strengthened, with the dollar falling
about 0.3 percent from Friday to 100.94 yen.
        
    * "Stocks are down, the yen is up, and JGB yields can
naturally be expected to come down. There is a feeling that
stocks have corrected to these lows, and this has brought some
stability," said a fixed-income fund manager at a Japanese trust
bank in Tokyo.
      
    * The yield on the 10-year cash bonds slipped
1.5 basis points to 0.825 percent. On Thursday last week, it
rose as high as one percent for the first time since April 2012.
    
    * The 10-year JGB futures contract ended morning
trade up 0.25 point at 142.55.
        
    * The superlong tenor also gained, although some market
participants said longer maturities could come under pressure
from now ahead of Tuesday's 20-year sale. 
    The 30-year bond yield fell 1.5 basis points
to 1.825 percent, while the 20-year bond yield 
also gave up 1.5 basis points to 1.670 percent. 
    
    * Over the weekend, BOJ Governor Haruhiko Kuroda brushed off
the potential impact of the rising JGB yields, saying Japanese
financial institutions have sufficient buffers against losses
they may incur from rises as long as market moves are driven by
prospects of an economic recovery. 

 (Reporting by Lisa Twaronite; Editing by Jacqueline Wong)
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