JGBs narrowly mixed; superlong zone pressured

Wed Nov 6, 2013 10:23pm EST

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TOKYO, Nov 7 (IFR) - Japanese government bond prices were narrowly mixed on Thursday, with superlong JGBs slipping ahead of a 30-year auction next week.

A drop in mid- and long-term U.S. Treasury yields on Wednesday had some positive impact on the newest issue of 10-year JGBs. The yield on the new 10-year notes shed 0.5 basis point to 0.605 percent, which was the average accepted yield in the previous day's auction of the notes.

But the trading volume of the new 10-year notes through JBT, the largest interdealer broker, was only 47.5 billion yen ($481.5 million) in the morning session.

As expected by market participants, the Bank of Japan offered to buy 1 trillion yen of JGBs under its massive bond-buying programme, in three tranches: 250 billion yen in the one- to three-year zone, 350 billion yen in the three- to five-year zone and 400 billion yen in the five- to 10-year zone.

Several money managers at large domestic life insurers and regional banks told IFR that JGB yields have been falling steadily solely because the BOJ has been buying JGBs across the curve since its new leadership took office in early April. But those fund managers agree that a possible rush to issue corporate bonds in the near future would put strong upward pressure on JGB yields.

BOJ Governor Haruhiko Kuroda told an upper house committee on Thursday that the central bank would eventually have to debate how to reduce the amount of government debt on its balance sheet to exit from its quantitative easing, but his remarks had little market impact.

At midday, the yield on the current five-year JGBs was unchanged from Wednesday at 0.20 percent, while the 20-year yield rose 0.5 basis point to 1.50 percent. The 30-year yield also added 0.5 basis point, to 1.645 percent ahead of next Tuesday's monthly 500 billion yen sale of 30-year bonds.

Lead December JGB futures moved in a 144.86-144.98 range before finishing the morning session up 0.09 point at 144.94.

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