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JGBs pare losses after robust demand at 10-year sale
* 10-yr sale bid-to-cover rises to 3.51, highest since May
* 10-yr futures end nearly flat on highest volume in 3 weeks
* Japanese net buying of overseas bonds slows in latest week
By Lisa Twaronite
TOKYO, Aug 1 (Reuters) - Japanese government bonds pared
losses on Thursday after a solid 10-year auction, but remained
pressured by weaker sentiment toward debt after the U.S. Federal
Reserve signalled no imminent reduction to its bond-buying
stimulus.
The Fed offered no sign after its latest meeting that it was
ready to begin paring the $85 billion in assets it buys each
month to stimulate the U.S. economy.
"The auction was in line with expectations, but nonetheless,
the market did not move so much," said Naomi Muguruma, senior
fixed-income strategist at Mitsubishi UFJ Morgan Stanley
Securities.
"I think everyone is waiting for tomorrow's big data in the
U.S.," she said. "If the data is extremely strong, I think the
market will start to price in an early tapering, and that
would push up U.S. Treasury yields and maybe put some upward
pressure on JGBs yields as well."
The U.S. payrolls report on Friday is expected to show an
increase of 184,000 with a chance of an upside surprise after
the ADP survey showed private jobs rose 200,000 in July.
Muguruma added that she expected the benchmark yield to
stick to a range of 0.75 percent to 0.85 percent in August.
The benchmark 10-year yield rose half a basis
point to 0.795 percent, off an earlier high of 0.800 percent and
edging back toward 0.770 percent touched last week, which was
its lowest since May 14.
The 10-year JGB futures contract ended down 0.01
point at 143.61, taking back ground after sinking as low as
143.41. Volume of 23,576 was still relatively low, but was the
highest since July 11 amid thin summer market conditions.
Prices for U.S. Treasuries rose on Wednesday after the Fed's
statement, reversing early losses and pushing the yield on the
benchmark 10-year Treasury note down to around 2.58
percent.
As yields on Treasuries have come off recent highs, Japanese
investors' net buying of overseas debt has slowed.
Domestic buyers took in a net 233.2 billion yen ($2.37
billion) of foreign bonds in the week through July 27, the
fourth straight week of net purchases, but net buying slumped
from 601.4 billion yen in the previous week, capital flows data
compiled by the Ministry of Finance showed.
TINY TAIL UNDERSCORES DEMAND
Japan's Ministry of Finance offered 2.4 trillion yen ($24.40
billion) of 10-year bonds on Thursday, reopening the current
issue with a coupon of 0.80 percent.
The notes sold at a lowest price of 99.98, mostly in line
with market expectations, and drew bids of 3.51 times the amount
offered, up from the previous sale's bid-to-cover ratio of 2.41
times and the highest since the May sale.
The tail between the average and lowest accepted prices,
another gauge of demand, came in at a miniscule 0.02, matching
last month's offering. A smaller number means stronger demand
for the bonds.
Market participants expect the Bank of Japan to conduct its
purchasing operations as early as Friday, which likely supported
demand at the sale.
"Banks buy medium- and long-term bonds, banks sell medium-
and long-term bonds to the BOJ. This is the pattern. These are
the flows now," said a fixed-income fund manager at a Japanese
trust bank in Tokyo.
On the long-term supply front, Japan will try not to
increase its government debt issuance over the next two years,
according to a draft government report meant to be a roadmap for
tackling the worst public debt problem in the industrial world.
The draft report was described to Reuters by several people who
have seen it.
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