JGBs steady ahead of expected solid demand at 10-year sale
TOKYO, July 2 (Reuters) - Benchmark Japanese government bonds were steady on Tuesday as investors anticipated a smooth sale of 10-year debt this session. * The Ministry of Finance offered 2.4 trillion yen ($24.06 billion) of 10-year bonds with a 0.8 percent coupon, reopening the current issue. The ministry said it would reopen current issues for the July and August auctions unless their yields move by 20 basis points or more. * "The auction will likely go smoothly," said a fixed-income fund manager at a European asset management firm in Tokyo. "The JGB market has calmed down in recent weeks, and volatility has been coming down, so it's safer to take positions now than it was before." * In addition, market participants said dealers were expected to buy at the auction to cover positions after they sold bonds in the 10-year tenor to the Bank of Japan in its regular outright purchase operations under its massive monetary stimulus scheme. * Japan's monetary base hit a record high in June, BOJ data showed on Tuesday, rising to 173.1 trillion yen at the end of last month from 159.2 trillion yen the previous month, as a direct result of the central bank's asset buying. The average monetary base balance rose 36.0 percent in June from a year earlier to 163.5 trillion yen, also a record high. The central bank is buying a monthly amount equivalent to about 70 percent of new issuance, in a bid to hit a two percent inflation target in two years. * The 10-year yield was flat at 0.880 percent, after earlier rising as high as 0.890 percent as investors made room in their portfolios to buy at the auction. The benchmark yield has remained in a range of 0.80 to 0.90 percent for about a month. * "While the yield level looks attractive to purchase at the auction if the 10-year JGB yield continues to move in a tight range, we admit it is not easy to buy aggressively considering the risk of further yield rises," strategists at RBS Securities Japan wrote in a note to clients. They recommended taking a relative-value trade for holding the 10-year JGB, noting the 10-year/20-year yield spread steepened into June, but started flattening recently and created more opportunity to take steepener positions. * Ten-year JGB futures ended morning trade up 0.02 point at their session high of 142.33, after earlier sagging to 142.15. * The superlong sector underperformed, with the 30-year zone particularly weak ahead of a sale of that maturity later this week. The finance ministry will offer 600 billion yen of 30-year debt on Thursday. The 20-year yield rose 1.5 basis point to 1.750 percent and the 30-year yield added 2 basis points to 1.890 percent.