JGBs edge down, taking cue from stronger equities
* 10-yr auction results in line with market expectations * Dealer short-covering cited at 10-year sale * Superlong tenor underperforms ahead of 30-yr sale on Thurs * Japan's monetary base hits record high in June-BOJ data By Lisa Twaronite TOKYO, July 2 (Reuters) - Benchmark Japanese government bonds edged down on Tuesday, taking their cue from stronger equities even after results of a 10-year debt sale came in within expectations. 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 were to move by 20 basis points or more. The notes sold at a lowest price of 99.22, in line with market expectations, and drew bids of 2.41 times the amount offered, down from the previous sale's bid-to-cover ratio of 3.14 times and the lowest since the March sale. But the tail between the average and lowest accepted prices, another gauge of demand, came in at 0.02, shrinking from 0.10 at last month's offering. "It was an interesting auction. The bid/cover was lower than last month," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch. But the narrower tail suggests that some dealers indeed bought to cover positions after they sold bonds in the 10-year tenor to the Bank of Japan in the central bank's regular outright purchase operations under its massive monetary stimulus scheme, as market participants had expected. "No one wants to be short with payrolls ahead," Fujita said, referring to U.S. jobs data due on Friday. Economists polled by Reuters expect payroll additions of 165,000 jobs for June. The U.S. Federal Reserve has said it will begin to consider tapering its bond-buying stimulus as the economy improves. Such expectations have pushed up U.S. Treasury yields, which add to upward pressure on JGB yields. A disappointing figure could suggest the central bank will not slow its bond buys any time soon. The 10-year JGB yield rose 1 basis point to 0.890 percent, after earlier rising as high as 0.895 percent, pushing the upper end of its range of 0.80 to 0.90 percent, in which the benchmark yield has stuck for about a month. Ten-year JGB futures ended down 0.02 point at 142.29, after earlier rising as high as 142.47, pushing lower late in the session as stocks extended gains. The Nikkei stock average ended up 1.8 percent. The BOJ buys a monthly amount equivalent to about 70 percent of new issuance, in a bid to hit a two percent inflation target in two years. As a result of the central bank's asset buying, 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. 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 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," said a fixed-income fund manager at a European asset management firm in Tokyo. 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 2 basis points to 1.755 percent and the 30-year yield added 3 basis points to 1.900 percent.
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