JGBs slip on wariness before 20-year offer
TOKYO, Oct 25 (Reuters) - Japanese government bonds inched lower on Thursday, as caution ahead of a 20-year bond auction offset the impact of a flight-to-quality rally in U.S. Treasuries overnight.
U.S. Treasuries rallied on Wednesday after data showed U.S. existing home sales fell to a record low sales pace in September, and as Merrill Lynch & Co Inc reported a huge $7.9 billion write-down on bad leveraged loans and mortgage bets.
JGB futures clawed higher at the open but the rise quickly ran out of steam, and 20-year bond yields rose as traders braced for the results of an auction in that maturity later in the day.
Bond dealers were likely selling futures to hedge against the risk of JGBs falling later if the auction results are poor, said a senior trader for a major Japanese bank.
"Recently it's been hard to hedge ahead of time because moves in JGBs tend to be triggered by what happens overnight," the trader said.
"Because of such jitters, people are hedging today. If it wasn't a day like this we might have seen JGBs rise more," he said.
December JGB 10-year futures dipped 0.12 point to 136.04 2JGBv1 after hitting a one-month high, for regular session trading, of 136.26 in early trade. Futures had risen as high as 136.27 in Wednesday's evening session.
Futures, however, still held near a key threshold of 136.41.
A rise above that in regular session trading would be a 20-month peak and the highest since February 2006, before the Bank of Japan scrapped a "quantitative easing" policy of flooding the banking system with excess funds in March 2006.
20-YEAR AUCTION
The benchmark 10-year JGB yield rose 2 basis points to 1.585 percent JP10YTN=JBTC.
Ahead of Thursday's auction results, the 20-year yield rose 2.5 basis points to 2.150 percent JP20YTN=JBTC.
The results of the Finance Ministry's auction of 800 billion yen ($7.01 billion) in 20-year JGBs with a coupon of 2.2 percent are due in the afternoon. The bonds were offered as a re-opening of the No. 97 20-year bond.
"People thought the Nikkei average would be a bit weaker and there is also the 20-year bond auction today," said Akitsugu Bandou, a senior strategist at Okasan Securities.
"If the auction goes well, we could see some buybacks in futures in the afternoon," Bandou said. Continued...
