JGBs rise as BOJ econ view eyed, euroyen futures jump
TOKYO, Dec 19 (Reuters) - Japanese government bonds rose on Wednesday as some investors speculated that the Bank of Japan may tone down its assessment of the economy after a two-day policy meeting that ends on Thursday.
The Japanese government struck a cautious tone on its outlook for corporate earnings in a monthly report on Tuesday, reinforcing views that the BOJ will likely hold off from raising interest rates until late next year, analysts said.
Lead three-month euroyen futures jumped to a nine-month high of 99.305 JEYv1 as expectations grew that central bank measures to make more money available in the interbank lending market would ease some of the anxiety caused by the credit squeeze.
Money market rates such as LIBOR for euro and sterling fell on Tuesday after the European Central Bank flooded the euro zone money market with a 348.6 billion euros ($500 billion) two-week loan while the Bank of England pumped in three-month funds, as part of a coordinated action with other major central banks to alleviate credit tightness.
"The JGB market is supported by expectations that a BOJ interest rate hike will be largely delayed," said Eiji Dohke, chief JGB strategist at UBS Securities.
March 10-year futures rose 0.19 point to 136.84 2JGBv1 and reached as high as 136.90, pulling further away from last week's one-month low of 135.94.
The benchmark 10-year JGB yield slipped 2.5 basis points to 1.510 percent JP10YTN=JBTC.
The BOJ is widely expected to keep interest rates on hold this week at 0.5 percent for a tenth month as the deepening global credit crisis and eroding domestic business confidence are making Japan's growth prospects less promising than previously thought [ID:nT155848].
Traders are also watching whether BOJ board member Atsushi Mizuho, who had called a rate hike repeatedly since July meeting, will again vote against the status quo.
The yield on new 20-year bonds auctioned the previous day dropped 1.5 basis points to 2.125 percent JP20YTN=JBTC.
The five-year note yield fell 1.5 basis points to 1.015 percent JP5YTN=JBTC, while the two-year yield was flat at 0.710 percent JP2YTN=JBTC.
CENTRAL BANKS ON FOCUS
The fund injections by the ECB and the BOE came a day before the Federal Reserve announces the results of a $20 billion auction of 28-day loans conducted on Monday.
Although Japanese money markets have generally stayed calm as banks' exposure to the U.S. subprime mortgage defaults was limited, traders will be watching the summary auction results due at 1500 GMT and how U.S. bond and equities market will react.
The U.S. central bank set up the new facility as part of a joint response by it, the ECB and the British, Canadian and Swiss central banks to ease tightness in longer-term funding in the money market. Continued...
