JGBs rise as BOJ econ view eyed, euroyen futures jump
TOKYO, Dec 19 (Reuters) - Japanese government bond futures rose on Wednesday as some investors speculated that the Bank of Japan may tone down its assessment of the economy after a two-day policy meeting that ends on Thursday.
The Japanese government on Tuesday struck a cautious tone on its outlook for corporate earnings in a monthly report, reinforcing views that the BOJ will likely hold off from raising interest rates until late next year, analysts said.
Lead three-month euroyen futures jumped to a nine-month high of 99.300 JEYv1 as expectations that central bank measures to make more money available in the interbank lending market would ease some of the anxiety caused by the credit squeeze.
Money market rates such as LIBOR for euro and sterling fell on Tuesday after the European Central Bank flooded the euro zone money market with a 348.6 billion euros ($500 billion) two-week loan while the Bank of England pumped in three-month funds, as part of a coordinated action with other major central banks to alleviate credit tightness.
"The JGB market is supported by expectations that a BOJ interest rate hike will be largely delayed," said Eiji Dohke, chief JGB strategist at UBS Securities.
March 10-year futures rose 0.09 point to 136.74 2JGBv1 and reached as high as 136.90, pulling further away from last week's one-month low of 135.94.
The benchmark 10-year JGB yield slipped 1.5 basis points to 1.520 percent JP10YTN=JBTC.
The yield on new 20-year bonds auctioned the previous day dropped 1.5 basis points to 2.125 percent JP20YTN=JBTC.
The five-year note yield fell 2 basis points to 1.010 percent JP5YTN=JBTC, while the two-year yield edged down half a basis points to 0.705 percent JP2YTN=JBTC.
The BOJ is widely expected to keep interest rates on hold this week at 0.5 percent as the deepening global credit crisis and eroding domestic business confidence are making Japan's growth prospects less promising than previously thought [ID:nT155848].
The amount of JGBs to be issued to the market in the next fiscal year starting in April will likely fall below 107 trillion yen ($945 billion), down from 109.6 trillion yen this fiscal year, according to government sources.
The sources told Reuters late on Tuesday that the Ministry of Finance was expected to reduce the auction amount of five-year JGBs to 1.9 trillion yen each month, down from 2.0 trillion yen currently [ID:nT133932].
The market showed muted reaction as the figures were in line with expectations and what the MOF had suggested in the past couple of weeks after meetings with primary dealers and JGB investors. (Editing by Mike Miller)
