JGBs edge up, curve flattens on good 30-year offer
TOKYO, April 17 (Reuters) - Japanese government bonds edged higher and the yield curve flattened on Tuesday, taking cues from an overnight climb in U.S. Treasuries and the best demand for newly auctioned 30-year debt in five years.
The favourable auction result gave some reprieve to the long end of the yield curve, which had been under pressure since late last week as traders prepared for fresh supply including the 30-year offer and next week's 20-year JGB auction.
The Finance Ministry's offer of 600 billion yen ($5 billion) in 30-year JGBs produced a bid-to-cover ratio of 4.26, the highest at a 30-year offer since 6.1 at an auction in May 2002.
"The yield curve had been steepening as traders focused on the 30-year offer, and I think the market is feeling some relief now that the auction is over," said Yasunori Kuroda, a manager for Sompo Japan Insurance Inc.'s fixed income division.
June 10-year JGB futures ended 0.05 point higher at 133.75 2JGBv1, having trimmed some gains after rising to an intraday high of 133.90 after the auction results were announced.
The benchmark 10-year JGB yield slipped half a basis point to 1.690 percent JP10YTN=JBTC as of 0749 GMT.
Kuroda said the high bid-to-cover ratio may partly have been caused by traders who had hoped to capitalise on uncertainty stemming from a change in the 30-year auction style to a conventional, price-competitive format.
Until the previous offer in January, 30-year debt had been offered via yield-based Dutch auctions.
"I think there may have been some orders that were a bit greedy, that may have been eyeing the possibility of buying the bonds at a low price," Kuroda said, adding that such thinking may have inflated the amount of bids at the auction.
But overall, the strong auction result showed that investors were eager to buy bonds on dips, analysts said.
The auction of 600 billion yen ($5 billion) in 30-year JGBs produced a lowest price of 100.80 and an average price of 100.86. The bonds were offered with a coupon of 2.4 percent, up from 2.3 percent at the previous 30-year offer in January.
EYES ON TREASURIES
U.S. Treasuries rebounded on Monday on a report showing a surprisingly sharp deterioration in home builder sentiment and on bargain hunting by some bond investors after U.S. benchmark yields reached two-month highs.
Bonds at the long end of the yield curve gained the most, with the 30-year JGB yield falling 3.0 basis points to 2.365 percent JP30YTN=JBTC and the 20-year yield slipping 2.5 basis points to 2.140 percent JP20YTN=JBTC.
The curve flattened as a result, with the spread between two- and 30-year yields shrinking to 153.5 basis points after swelling to 157.5 basis points on Monday, the widest since late February.
With few major Japanese data releases due until a rush of month-end data such as consumer prices and industrial output on April 27, JGBs are likely to continue to take their cues from moves in U.S. Treasuries for the next couple of weeks.
April 27 is also when the Bank of Japan is due to release its twice-yearly outlook report.
One focus is whether 10-year JGB yields can break above the psychologically key 1.700 percent level, where investor bargain-hunting demand is said to be strong. (Additional reporting by Eric Burroughs)
