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JGBs surge after Treasuries rise, eyes on auction
TOKYO, June 3 (Reuters) - Japanese government bond futures surged on Tuesday after U.S. Treasuries rallied the previous day on safe-haven buying due to renewed concerns about the health of the financial sector.
JGB futures rose after sliding to 10-month lows on Monday, while the benchmark 10-year yield slid around 7 basis points and euroyen futures rallied around 5 basis points in early trade.
Recent optimism that a global credit crisis was winding down took a severe blow on Monday when Standard & Poor's cut debt ratings of three U.S. brokers, a top U.S. bank ousted its chief executive and a British lender offered a bleak assessment of the UK housing market. [ID:nN02565648]
"JGBs are taking cues from the flight-to-quality type moves seen in U.S. and European markets as concerns about the financial sector re-emerged," said Naomi Hasegawa, senior fixed-income strategist for Mitsubishi UFJ Securities.
The rebound in JGBs, however, could make it harder to gauge the level of investor demand for a key 10-year bond auction later on Tuesday, Hasegawa said.
If JGBs rise too much going into the auction, that might make the new 10-year bonds less attractive for investors who had been hoping to buy the bonds on dips, she said.
June 10-year JGB futures surged 0.55 point to 134.47 2JGBv1, recouping the 0.53 point fall they suffered on Monday when they slid to a 10-month low of 133.54.
The benchmark 10-year yield fell 6.5 basis points to 1.720 percent JP10YTN=JBTC, pulling away from a 10-month high of 1.805 percent hit last Thursday.
The lead March three-month euroyen futures contract rose 4.5 basis points to 98.880 JEYv1.
The Ministry of Finance is due to offer 1.9 trillion yen ($18.2 billion) in 10-year JGBs on Tuesday.
Analysts said the coupon rate is likely to be set at 1.7 percent or 1.8 percent, based on current market levels.
A 1.8 percent coupon rate would be the highest since the 1.8 percent coupon at a 10-year JGB auction held last August, when turbulence in global credit markets had started to deepen.
While such a coupon would hold some attraction, market players said investors were unlikely to immediately snatch up the new paper, since they had been roiled by the sharp rises in JGB yields in April and May, and bond dealers are also seen as being less willing to take on risk due to the risk market turbulence. (Editing by Chris Gallagher)
