JGB yields edge down, BOJ stands pat as expected

Wed Jan 22, 2014 2:28am EST

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TOKYO, Jan 22 (IFR) - Japanese government bond prices inched higher on Wednesday, though many real money accounts remained largely sidelined as the Bank of Japan was not active in the secondary market.

The BOJ was absent in the market under its scheme to recharge the world's third-largest economy, as it concluded a two-day policy meeting.

The BOJ kept monetary policy steady and maintained its upbeat inflation forecasts, suggesting that no imminent monetary easing is on the horizon as the country's economic recovery broadens.

The soft yen, which inflates import costs, has helped Japan pass the halfway mark toward its 2 percent inflation target with prices in November up 1.2 percent from the year before.

The Japanese central bank stunned the financial markets in April by promising to inject $1.4 trillion in the economy in less than two years.

The 10-year yield was down 1 basis point at 0.675 percent, while 10-year JGB futures rose 12 ticks to 144.15, holding just below their five-day moving average of 144.17.

Relatively stable U.S. Treasuries and German Bunds overnight had some positive impact on the JGBs.

The longer-dated sectors underperformed ahead of an auction of 1.2 trillion yen ($11.5 billion) of 20-year JGBs on Thursday. Both the 20- and 30-year yields slipped 0.5 basis point, to 1.540 and 1.705 percent, respectively.

The spread between the 10- and 20-year yields narrowed to 86.5 basis points after holding at 87 basis points, a one-month high for a few sessions.

One money manager at a domestic mutual fund said he expected the spread to widen to around 100 basis points, the highest level since Feb. 26 2012, due to weak demand from domestic life insurers at current levels.