JGB futures hit 1-month high on Treasuries, stocks
By Rika Otsuka
TOKYO, Jan 9 (Reuters) - Japanese government bond futures hit a fresh one-month high on Wednesday as investors took their cue from an overnight rally in U.S. Treasuries and a fall in share prices.
But gains were capped with investors wary of picking up bonds too aggressively as the Ministry of Finance is selling 10-year JGBs this session, the first big event for the market this year.
"Market players are focusing on today's 10-year auction as it will show what investors want to do from now on in terms of bond investment," said Atsushi Ito, a JGB strategist at Morgan Stanley.
The MOF offered around 1.9 trillion yen ($17.5 billion) of 10-year JGBs on Wednesday in a reopening of the 289th issue with a 1.5 percent coupon, the lowest since January 2006.
Analysts said the 1.5 precent coupon should draw fair investor demand for the debt sale as many market players expect the benchmark 10-year yield to stay below 1.5 percent in the mid- to long-term.
Slumping domestic share prices and fears of a U.S. recession and a slower global economy have prompted more investors to think the Bank of Japan will wait until the second half of this year, or possibly next year, to raise interest rates from the current 0.5 percent. That has been supporting JGBs firmly.
March futures 2JGBv1 were up 0.20 point at 137.52 after rising as high as 137.62, the highest since early December.
A rise above 137.73 would take the lead contract to the highest level since January 2006.
The yield on the benchmark 10-year JGB JP10YTN=JBTC slid 1.5 basis points to 1.445 percent after falling as low as 1.440 percent, a fresh one-month low.
The Nikkei share average .N225 fell as low as 14,271.57, the lowest since June 2006, in early trade. The stock index was down 0.75 percent at 14,419.86 by midday.
U.S. Treasuries prices rose on Tuesday, with benchmark yields falling to six-week lows as fears over corporate earnings and losses at financial companies sparked a stock sell-off.
Shorter-dated notes, more sensitive to changes in monetary policy outlook, outperformed the rest of the market.
The two-year yield JP2YTN=JBTC was down a basis point at 0.660 percent, the lowest since October 2006.
The yield on the five-year note JP5YTN=JBTC fell 2 basis points to 0.935 percent after hitting a new 2-year low of 0.930 percent.
The 20-year yield JP20TYN=JBTC dipped 0.5 basis point to 2.080 percent.
The yield curve steepened further as a result. The spread between 20- and five-year JGBs reached 114.5 basis points, its widest since early 2006.
Analysts said this steepening trend in the yield curve is likely to stay as dealers keep selling longer maturities for shorter ones given expectations that the BOJ will stand pat for a while. ($1=108.85 Yen) (Editing by Michael Watson)
