JGBs rise, benchmark yield retraces 3-month low

Wed Aug 28, 2013 3:03am EDT

Related Topics

* 10-yr futures rise to highest intraday level since May 10

* Yield curve flattens as superlong tenor outperforms

By Lisa Twaronite

TOKYO, Aug 28 (Reuters) - Japanese government bond prices rose on Wednesday, pushing the 10-year yield to retrace a 3-month low, as heightening tension over Syria increased the safe-haven appeal of fixed-income assets.

The Bank of Japan's regular bond-buying operations under its massive easing scheme also underpinned supply conditions.

The BOJ offered to buy outright 800 billion yen ($8.23 billion) of JGBs, comprised of 250 billion yen with 1 to 3 years left to maturity, 350 billion yen with 3 to 5 years left to maturity, and 200 billion yen with more than 10 years left to maturity.

"It's definitely a BOJ-driven market," said Maki Shimizu, senior JGB strategist at Citigroup in Tokyo.

"It's not a time to sell bonds right now," she added.

U.S. Treasuries rose as Washington and its allies prepared for possible military action against Syrian President Bashar al-Assad's forces, which were apparently behind last week's chemical weapons attacks.

Nervous investors shed riskier assets, with Japan's Nikkei stock average skidding 1.5 percent. That also boosted bond market sentiment.

The 10-year JGB yield fell 2 basis points to 0.720 percent, retracing a three-month low touched a week ago.

According to IFR, a Thomson Reuters publication, good two-way flow was seen in the 10-year zone among many domestic real money accounts.

Ten-year JGB futures ended up 0.30 point at 144.29 after earlier hitting an intraday high of 144.36, their highest since May 10. Volume was moderate, with 23,698 contracts changing hands.

The yield curve flattened as the superlong sector also gained, with the yield on the 30-year JGB falling 2.5 basis points to 1.765 percent, while the 20-year yield slipped 3 basis points to 1.655 percent.

The BOJ has pledged to maintain its quantitative easing until deflation is vanquished and inflation stabilizes at 2 percent.

BOJ deputy governor Kikuo Iwata said in a speech on Wednesday that as it will take time for monetary policy to work, and fiscal policy support is also needed to underpin growth.

Japan expects to spend a record $257 billion to service debt during the next fiscal year, a document obtained by Reuters showed, underscoring the huge burden created by the government's borrowings.

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