* Superlong tenors outperforming
* JGBs shrug off tankan, which shows Japan firms less gloomy
* MOF to auction 2.3 trln yen, 10-year bonds on Tuesday
By Dominic Lau
TOKYO, July 2 Japan's government bond prices
rose on Monday, with superlongs outperforming, driven by demand
at the start of the quarter, while the response for Tuesday's
auction of 10-year debt was likely to be fair despite an
expected low coupon rate.
The yield on both the 20- and 30-year JGBs
dipped 1.5 basis points, to 1.645 and 1.865
The 10-year yield ticked down 1 basis point
to 0.825 percent, reversing a rise on the back of Friday's
agreement by European leaders to bring down the borrowing costs
of Spain and Italy, and ahead of Tuesday's auction of 2.3
trillion yen ($28.83 billion) worth of 10-year debt.
"We cannot expect the demand to be extremely good but we
don't think the demand will be poor," said Naomi Muguruma,
senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley
The new offer is expected to carry the lowest coupon in nine
years, of 0.8 percent, 10 basis points below the last two
auctions of similar maturity.
"The JGB market seems to be well supported. I think
investors are deep buyers, given that the 10-year JGB yield
declined faster than had expected in previous quarter," Muguruma
"It seems domestic investors are still behind in their JGB
investment plan, so if there is any dip in tomorrow's auction.
There should be good buy-on-dip demand."
The benchmark 10-year yield had fallen 15.5 basis points in
April-June to log its biggest fall since July-September 2010.
LITTLE TANKAN IMPACT
Monday's fall in JGB yields came despite the Bank of Japan's
tankan survey showing that Japanese manufacturers were less
pessimistic about business conditions in the three months to
June, a sign that the economy was on track for a moderate
recovery amid the pain from Europe's debt crisis and slowing
But Shogo Fujita, chief Japan bond strategist at Bank of
America Merrill Lynch, said the 10-year yield could be ripe for
a correction and may test the 0.9 percent level in the next 10
days, partly as the pressure on the BOJ to ease in next week's
meeting has faded slightly.
"Given the move by the euro zone leaders, it gives some room
for the BOJ to breathe. Had they had not done anything and, say,
the ECB does nothing this week, I am sure the BOJ will be pushed
verbally to keep up its quantitative easing stance or maybe do
something as well," Fujita said.
"We will be pricing out a little bit of aggressive BOJ which
is already priced in in 10-year bonds."
Apart from debating whether the economy needs further
monetary stimulus, BOJ policymakers will issue revised quarterly
growth forecasts after their two-day meeting starting on July
The 10-year JGB futures were up 0.08 point at
143.77, holding above their 20-day moving average. About 30,353
contracts changed hands, up from last Friday's 24,279 and last
two weeks' average of 21,189.
A Thomson Reuters weekly survey showed sentiment towards
Japanese government bonds deteriorated for a third straight
week, with the poll's sentiment index skidding to its lowest
level since it began in June 2011.