JGBs mixed, soft spending data adds to BOJ doubt
TOKYO, Jan 30 (Reuters) - Japanese government bonds were mixed on Tuesday, drawing support from soft spending data that reinforced doubts about a Bank of Japan rate rise next month, but held back by falls in U.S. Treasuries.
Data showed overall household spending fell 1.9 percent in December from a year earlier, a bit worse than expected, while the jobless rate rose to 4.1 percent compared to market expectations for it to remain steady at 4.0 percent.
"I think the possibility of a February rate rise receded after last week's CPI data and these results seem to support such thinking," said Naomi Hasegawa, a senior fixed income strategist for Mitsubishi UFJ Securities.
Data showing industrial output rose by a better-than-expected 0.7 percent in December from the previous month had limited impact, with traders focusing more on consumption and inflation to gauge the chances for a BOJ rate rise, Hasegawa said.
March 10-year JGB futures rose to 134.38 2JGBv1 at the end of the morning session, a gain of 0.03 point on the day.
The March contract had hit a one-month high of 134.96 on Friday after Japan's consumer price index (CPI) came in softer than expected, stirring doubts about whether the BOJ would raise interest rates at its Feb. 20-21 meeting.
The benchmark 10-year JGB yield slipped 0.5 basis point to 1.715 percent JP10YTN=JBTC as of 0237 GMT.
The yield curve steepened slightly, as longer term yields rose while yields on bonds with shorter maturities stayed flat.
The 30-year yield rose to a fresh three-month high of 2.455 percent JP30YTN=JBTC for a rise of 1.0 basis point on the day, and the 20-year edged up 0.5 basis point to 2.195 percent JP20YTN=JBTC.
The two-year yield was steady at 0.730 percent JP2YTN=JBTC.
U.S. Treasuries slipped on Monday, lifting yields to levels just shy of last week's five-month peaks as investors awaited key economic reports and a two-day Federal Reserve policy meeting that ends on Wednesday.
U.S. Treasury yields have been pushed up by a series of economic data supporting views that the Federal Reserve will hold interest rates steady in the coming months.
The BOJ's decision to keep interest rates unchanged at 0.25 percent earlier this month and doubts about whether it will raise interest rates in February have caused short-term bond yields to fall, accelerating a steepening of the yield curve.
TWO-YEAR AUCTION
Traders have been focusing on consumption-related data ever since BOJ Governor Toshihiko Fukui said in December that data on personal consumption and consumer prices have been somewhat weak.
But because Tuesday's soft spending data came at a time when investor sentiment has turned cautious due to rises in U.S. Treasury yields and ahead of a 10-year JGB auction on Thursday, any boost to JGBs was likely to be limited, said Kazuhiko Sano, chief strategist for Nikko Citigroup in Tokyo.
"They aren't negative factors but aren't major positives either," Sano said, adding that short-term bonds were likely to be the main beneficiaries.
The Finance Ministry offered 1.7 trillion yen ($13.96 billion) in two-year JGBs with a 0.8 percent coupon rate, unchanged from the previous auction in December.
Market players say investors are likely to be lukewarm toward the new issue given that a rate rise in the next few months cannot be ruled out.
A Reuters survey on Friday showed that market expectations were tilting towards the view that the BOJ will not raise interest rates in February although it remains a close call.
