JGBs little changed in quiet trade, auction watched
By Rika Otsuka
TOKYO, March 4 (Reuters) - Japanese government bonds were little changed on Tuesday, as dealers sold bonds to hedge against a 10-year debt auction while a fall in stocks prompted investors to seek the safety of government debt.
But activity was subdued as market participants eyed the Ministry of Finance's 1.9 trillion yen ($18 billion) auction of benchmark 10-year JGBs, the main focal point on Tuesday.
The coupon was set at 1.4 percent, below the 1.5 percent at the last month's sale of the same maturity and a level not seen since the Bank of Japan in March 2006 ended its super-loose monetary policy of flooding the banking system with funds to keep interest rates near zero.
Analysts said they expect Tuesday's auction to attract decent investor demand, albeit not robust due to the lower coupon, as investors now expect the BOJ could possibly cut rates this year.
"The market should digest the new debt supply without much problem, although it could take two or three days to do so," said Tetsuya Miura, a bond strategist at Shiko Securities.
"Once the market sees investor demand is not bad, more bond buying is likely to come in," Miura said.
March 10-year futures 2JGBv1 edged down 0.01 point to 138.69. On Monday the lead contract rose as high as 138.93, its highest since a 2-1/2-year peak of 138.94 hit on Jan. 23.
The lead contract fell as low as 136.89 last week, its lowest since late December.
JGBs have risen sharply in the past week as expectations have grown that a downturn in the U.S. economy will drag on Japan.
The BOJ has left rates at 0.5 percent for the past year, and interest rate futures are pricing a roughly 55 percent chance of a rate cut later this year, rising from around 20 percent about a week ago.
The 10-year yield was down 0.5 basis point at 1.335 percent JP10YTN=JBTC. It fell as low as 1.320 percent the previous day, its lowest since Jan. 23.
The Nikkei share average .N225 was down 0.4 percent in morning trade after plunging 4.5 percent on Monday on concerns about the stronger yen hurting corporate profits and growing worries about a U.S. recession. (Editing by Mike Miller)
