JGBs up after Treasuries boost from weak U.S. data
TOKYO, Dec 18 (Reuters) - Japanese government bond futures edged up on Tuesday after U.S. Treasuries rose due to weak economic data and a slide in equities that increased the appeal of safe-haven government debt. Lead three-month euroyen futures also climbed and hit a nine-month high of 99.255 JEYv1, supported by expectations that the Bank of Japan will likely hold off from raising interest rates from 0.5 percent until late next year.
"Following the developments in the United States, the Nikkei share average is a bit weak, and that is spurring JGB buying," said Akitsugu Bandou, a senior strategist for Okasan Securities.
"But there is a 20-year auction coming up, so there is also a bit of a wait-and-see mood," Bandou said.
March 10-year JGB futures rose 0.17 point to 136.65 2JGBv1, pulling away from last week's one-month low of 135.94, supported by a 0.8 percent fall in the Nikkei .N225.
The benchmark 10-year JGB yield slipped 2 basis points to 1.530 percent JP10YTN=JBTC.
U.S. Treasuries gained a boost on Monday from weak readings on regional manufacturing activity and the housing market.
Factory performance in New York state fell to a seven-month low in December, and U.S. home builders' sentiment remained at a record low for a third consecutive month, the data showed. [ID:nN17397169]
The Ministry of Finance offered 800 billion yen ($7.1 billion) in 20-year JGBs on Tuesday. The new No.99 20-year JGBs were offered with a coupon of 2.1 percent, unchanged from the No.98 20-year bonds auctioned in November.
Analysts say the new 20-year issue is likely to be well-received, since the 20-year sector now looks relatively cheap compared with short- and medium-term notes as well as 10-year debt.
The yield spread between 10- and 20-year JGBs rose to 61 basis points, the widest since October 2005 on a last-traded basis.
MONEY MARKET, ISSUANCE PLANS
The yield differential between five- and 20-year JGBs stood at 110 basis points, the highest in about 1-½ months.
The 98th 20-year JGB yield dipped 0.5 basis point to 2.140 percent JP20YTN=JBTC.
A focal point this week is whether a concerted effort among overseas central banks to boost money market liquidity will help bring down money market rates such as LIBOR, and how U.S. bond and equities markets will react.
The Federal Reserve held its first auction of new term loans on Monday, offering $20 billion in 28-day loans. Summary auction results will be released on Wednesday.
The U.S. central bank set up the new facility as part of a joint response by it, the European Central Bank and the British, Canadian and Swiss central banks to ease tightness in longer-term funding in the money market.
In addition, Japan usually unveils its JGB issuance plans in late December for the fiscal year starting on April 1.
The MOF has said it plans to reduce issuance of the unpopular 15-year floating rate JGBs in fiscal 2008/09.
It also plans to reduce five-year JGB issuance while slightly increasing 40-year issuance.
As a result, the amount of JGBs issued directly to the market is likely to fall to around 107.8 trillion yen, down from 109.6 trillion yen this fiscal year, said Kazuhiko Sano, chief strategist for fixed-income research at Nikko Citigroup in Tokyo. Any deviation would come as a surprise but is unlikely to have much market impact, Sano said. "It's not really a theme for the market. Issuance has been declining and supply conditions have basically been good."
The supply-demand balance for JGBs could be particularly favourable in the January-March quarter, due to factors such as domestic investors holding surplus funds that they may use for investment, Sano said. (Editing by Michael Watson)
