JGBs extend losses after lacklustre 20-year auction

Tue May 28, 2013 2:38am EDT

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* BOJ's Miyao offers no concrete steps to maintain bond
market stability
    * 10-yr futures extend losses in afternoon

    By Lisa Twaronite
    TOKYO, May 28 (Reuters) - Japanese government bonds skidded
on Tuesday, with the benchmark yield moving back toward last
week's 13-month high, after a 20-year sale disappointed some
investors and a Bank of Japan official offered no specific steps
on market operations. 
    BOJ board member Ryuzo Miyao told a news conference on
Tuesday it was vital to keep long- and short-term interest rates
on a stable path. 
    His remarks offered little in the way of concrete
reassurance to a market left reeling by the central bank's
massive stimulus scheme unveiled on April 4, under which it is
buying a monthly amount equivalent to 70 percent of JGB
issuance. 
    Miyao's comments, combined with a recovery in recently
languishing Japanese shares, added to the pallor cast by the
downbeat auction outcome.
    "The auction was a little bit weaker than expected," said
Tadashi Matsukawa, head of fixed-income at Pinebridge
Investments in Tokyo.
    "It was only driven by dealers' shortcovering. Tomorrow
we'll probably have BOJ operations, and that might help,
particularly at the long end of the curve," he said.
    The 10-year sector is likely to underperform ahead of next
week's auction in that tenor, he added.
    The yield on the 10-year cash bonds extended
its rise in late afternoon, adding 7 basis points to 0.905
percent, and moving back toward last Thursday's high of 1
percent. 
    The 10-year JGB futures contract ended down 0.59
point at 141.84 after dropping as low as 141.70 in the afternoon
session, as the Nikkei share average managed to end 1.2
percent higher.    
 
   
    Miyao said BOJ policy would keep downward pressure on
interest rates and that the central bank would continue to
pursue flexible market operations by increasing scope and
frequency. 
    He re-emphasized the central bank's stance that it will
fine-tune market operations and enhance communication with
market participants. The BOJ will hold a meeting with JGB market
participants on Wednesday.  
    The Ministry of Finance offered 1.2 trillion yen ($11.87
billion) of 20-year notes, reopening issue number 143, which
carries a 1.6 percent coupon. The notes sold at a lowest price
of 98.60, below expectations, and drew bids of 2.54 times the
amount offered, down from the previous sale's bid-to-cover ratio
of 3.68 times. 
    The tail between the average and lowest accepted prices came
in at 0.21, the same as last month's offering.    
    The 20-year bond extended losses after the sale, its yield
 adding 3.5 basis points to 1.700 percent.  The
30-year bond yield rose 2 basis points to 1.835
percent,   
    "Institutional investors have some scope to buy, but some
are hesitant and are waiting a little longer to watch where the
market is heading," said a fixed-income fund manager at a
Japanese asset management firm.
    Market participants and strategists expect that some funds
might use the rise in yields as an opportunity for dip-buying in
the last trading week of May. Funds often buy near the end of a
month to extend the duration of their bond portfolios.
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