JGBs slip on Nikkei gains before 10-year auction
TOKYO, Oct 2 (Reuters) - Japanese government bonds slipped on Tuesday, surrendering gains from the previous day as a jump in Tokyo shares following a solid rise on Wall Street overnight prompted selling of safe-haven debt.
JGBs had pushed higher on Monday as investors put funds to work at the start of the second half of Japan's fiscal year, taking advantage of an early market dip after the quarterly tankan survey showed resilient confidence among big manufacturers.
Dealers are girding for a 1.9 trillion yen ($16 billion) auction of 10-year bonds later in the session, with the coupon set at 1.7 percent in a reopening of the No. 288 issue first sold last month. Results will be released at 0345 GMT.
Demand is expected to be decent as portfolios shift more cash into the market in the early part of the October-March half of the business year.
"A lot of money is resting in the money market and waiting to be invested, so potential demand is high," said Nhan Ngoc Le, a JGB strategist at ABN Amro. "It could be a very supportive factor for the market for the next two to three weeks."
December 10-year futures 2JGBv1 fell 0.21 point to 134.88, slipping back on the stock market gains towards a six-week low of 134.32 struck last week.
By midday, the Nikkei share average .N225 was up 1 percent to overtake the 17,000 level for the first time in nearly two months. [.T]
The benchmark 10-year JGB JP10YTN=JBTC edged up 1.5 basis points to 1.675 percent.
Five-year yields JP5YTN=JBTC rose 2.5 basis points to 1.205 percent, while 20-year yields JP20YTN=JBTC climbed 1.5 basis points to 2.185 percent.
A raft of Japanese data in the past few days has showed the economy steadily expanding, with industrial production and household spending beating expectations in August even as core inflation remains stuck slightly in negative territory.
The reports have kept in place expectations that the Bank of Japan could raise overnight rates to 0.75 percent from 0.5 percent in December or early next year as the central bank is seen continuing to normalise monetary policy.
Investors see a roughly 50 to 55 percent chance the BOJ will raise rates in December and a 60 percent chance of a hike in January, according to swap contracts on the overnight call rate JPONIBOJ=TRDT.
The BOJ has kept rates on hold while waiting to see how severe the U.S. economic slowdown is and what fallout there could be on the domestic economy. The BOJ holds a policy meeting next Wednesday and Thursday, as well as on Oct. 31 when it will release its semi-annual outlook on the economy and prices.
U.S. data overnight showed the Institute for Supply Management's factory index slipping a bit more than expected to 52.0 in September from 52.9 the previous month but still holding above the 50 break-even line to show growth.
The ISM index is seen by economists as a good bellwether of the overall U.S. economy's health.
