JGBs steady; BOJ increases discount bill purchases

Thu Jul 10, 2014 11:14pm EDT

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TOKYO, July 11 (IFR) - Japanese government bonds were steady in quiet trading on Friday, supported by the Bank of Japan's buying operations.

In the morning session, cash activity was limited to transactions among dealers ahead of the weekend. The JGB market largely shrugged off fears about financial woes at the family-owned holding companies behind Portugal's largest-listed bank, which roiled European markets on Thursday.

Finance Minister Taro Aso said earlier on Friday that Japan's long-term interest rates are abnormally low, with the benchmark 10-year bond yield now trading at a 15-month low, reflecting global low interest rates.

Yields on the 7-year to 8-year JGBs dropped further by 0.5 basis point, pushing JGB futures higher toward their record intraday high of 146.41 set on April 5 last year.

In the superlong zone, the current 30-year and 40-year JGBs softened, with respective yields rising 1 basis point to 1.725 percent and 1.840 percent.

The BOJ offered to buy 300 billion yen ($2.96 billion) of JGBs in the 1-year to 3-year zone, 200 billion yen in the 3-year to 5-year zone, 100 billion yen in the 10-year to 25-year zone, and 30 billion yen of JGBs maturing in more than 25 years. The BOJ bought JGBs of the same tenors and in the same amounts on June 27 and July 7.

The yields on the current 2-year, 5-year , 10-year, and 20-year JGBs were all unchanged from Thursday at 0.060 percent, 0.145 percent, 0.540 percent and 1.420 percent, respectively.

Ten-year lead September JGB futures moved in a narrow 145.86 to 145.92 range and ended morning trading up 0.06 point at 145.91.

BOJ INCREASES T-BILL PURCHASES

The BOJ increased the size of a Japanese government discount bill-buying operation to 3 trillion yen, seeking 6-month bills to achieve its year-end monetary base target.

As the finance ministry is scheduled to auction 1-year bills next week, which will also help the BOJ to achieve the monetary base target, the central bank will likely buy another 3 trillion yen of bills again next week, some market participants said.

The focus is on whether the BOJ would accept bids if participants try to sell bills over par, they said.

In reaction to the BOJ's operations, the benchmark three-month yield firmed to 0.02 percent from Thursday's close of 0.026 percent.

A week ago, the yield on three-month bills fell to zero percent for the first time since late 2005, on fears that short-term bills could disappear from markets as the Bank of Japan vacuums them up to facilitate its asset purchases. ($1 = 101.3200 Japanese yen) (Reporting by Masatsugu Hisatsune and Takahiro Okamoto; Editing by Jacqueline Wong)

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