Benchmark JGBs edge higher, pushing yield to 3-month low

Thu Aug 29, 2013 2:51am EDT

Related Topics

* Superlong tenor outperforms on month-end duration extension buying

* 2-year sale meets strong demand; technical glitch delays results

By Lisa Twaronite

TOKYO, Aug 29 (Reuters) - Japanese government bond prices edged higher on Thursday, pushing the 10-year yield to a fresh three-month low, with the super-long tenor outperforming as funds extended the duration of their portfolios.

An auction of 2-year notes met strong demand as expected. The announcement of the results was delayed by a technical glitch that had no impact on trading, market participants said.

The 10-year JGB yield fell half a basis point to 0.710 percent, its lowest since May 10, which was the last day it traded below the 0.70 percent threshold to drop as low as 0.625 percent.

"Month-end duration extension trades probably pushed down the super-long end of the curve further, while I think the 10-year traded mixed, and at the short end of the curve, the 2-year JGB auction was strong," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

According to IFR, a Thomson Reuters publication, many regional banks are selling 10-year JGBs and illiquid corporate bonds for the second consecutive session to lock in profits, while some pension funds have been buying JGBs for their month-end duration adjustments.

Bank of Japan board member Yoshihisa Morimoto said in a speech on Thursday that the average duration of JGBs the BOJ buys under its operations should be in a range of 6-8 years.

Ten-year JGB futures ended up 0.12 point at 144.41 after earlier touching an intraday high of 144.47, their highest since May 9. Volume was a relatively thin 16, 320 contracts.

SUPER SUPER-LONGS

The yield curve flattened as the super-long sector outperformed, with the yield on the 30-year JGB falling 2 basis points to 1.745 percent, its lowest since June 4, while the 20-year yield slipped 2 basis points to 1.630 percent, its lowest since June 10.

Downbeat retail sales data also underpinned demand for JGBs. Sales fell 0.3 percent in July from a year earlier, far short of the 0.6 percent gain projected by economists polled by Reuters, which suggests that consumer spending is losing some momentum.

The Ministry of Finance offered 2.9 trillion yen ($29.68 billion) of 2-year JGBs with a 0.1 percent coupon. The notes sold at the lowest price of 99.975, in line with most market expectations, and drew bids of 5.55 times the amount offered. That was down from the previous sale's bid-to-cover ratio of 9.27 times, but still strong.

The tail between the average and lowest accepted prices shrank to zero from 0.005 at last month's offering. A smaller number means stronger demand for the bonds.

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