JGBs firm in line with Treasuries, linker sale eyed

Mon Jul 7, 2014 11:06pm EDT

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TOKYO, July 8 (IFR) - Japanese government bond prices mostly edged up on Tuesday in line with gains in U.S. Treasuries overnight.

Some investors actively bought 6-year to 9-year JGBs, while regional banks and cooperative banks were largely sidelined in the morning session, according to JGB market participants.

As expected, the Bank of Japan did not offer to buy any JGBs under its massive asset-purchase program, as the central bank normally refrains whenever the Ministry of Finance conducts a JGB auction.

MOF offered 400 billion yen ($3.93 billion) of 10-year Consumer Price Index-linked notes, known as "linkers." It reopened the current issue (number 18, with a 0.1 percent coupon, due March 10, 2024) for the regular settlement date.

In morning trade, the new linker traded at 108.55, up 0.45 from yesterday, before finishing midday at 108.50-108.60.

Several institutional investors sold old linkers to shift into the new linker, sending prices on old linkers down 0.30 on the day. Unlike old linkers, the principal amount of the new linkers will be guaranteed at maturity. This morning, MOF offered to buy 30 billion yen in old linkers in its JGB buyback operation.

On Monday, longer-dated U.S. Treasuries yields fell on buying supported by the view that the recent acceleration in job gains is not enough to spur the Federal Reserve to raise short-term interest rates earlier than expected.

In Tuesday JGB trading, the yield on the current 5-year JGBs was unchanged from the previous session at 0.155 percent, while the benchmark 10-year yield edged 0.5 basis point lower to 0.555 percent.

In the superlong zone, the 20-year yield was down 1 basis point at 1.425 percent, while the 30-year yield also fell 1 basis point to 1.700 percent.

Ten-year lead September JGB futures moved in a range between 145.63 and 145.71 before finishing the morning session up 0.09 point at 145.69. ($1 = 101.7800 Japanese Yen) (Reporting by Masatsugu Hisatsune; Editing by Kim Coghill)

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