* Thirty-year yield hovers near 10-year low
* Trading volume in 10-year futures hits lowest this year
* Two-year yield recovers to trade flat after decent auction
By Dominic Lau
TOKYO, March 28 Yields on benchmark 10-year
Japanese government bonds plumbed a near-decade low for a sixth
day in a row on Thursday, driven by market conviction that the
central bank will deliver a bold monetary stimulus at its
meeting next week.
The 10-year yield dipped 0.5 basis point to
0.510 percent, its lowest level since June 2003, when it slumped
to a record trough of 0.430 percent on the back of the Bank of
Japan's quantitative easing measures.
It has fallen 28.5 basis points so far this quarter, on
track for its biggest three-month fall in nearly three years.
But Maki Shimizu, senior strategist at Citigroup in Tokyo,
recommended investors close their long positions on the 10-year
sector ahead of an auction of 2.4 trillion yen ($25.4 billion)
of similar maturities on Tuesday and the BOJ policy meeting on
April 3 and 4.
"We just closed our 10-year long strategy. Many people among
domestic investors are probably thinking about closing their
long positions now, ahead of the BOJ meeting," she said.
"We are wary of the factors that could support higher yield
from next week onwards. We chose not to wait until the BOJ
Ten-year JGB futures marked a new record high of
145.98, before ending the day down 0.02 point at 145.86. Trading
volume was the lowest this year, with 16,970 contracts changing
Shimizu said investors were also likely to take profit near
the start of the financial year in Japan, which begins on April
"The question is when that will happen ... whether they will
wait until the BOJ meeting. If that becomes the majority view
(waiting until the BOJ meeting) into next week, then the 10-year
yield can renew this 0.430 (percent) record low," she said. "The
view is still spilt."
Citigroup expected the 10-year yield to trade in a range of
0.60 to 0.80 percent in the next three months.
The 20-year yield fell 3 basis points to
1.405 percent for the day. It tugged its lowest level since July
2003 at 1.400 percent earlier in the afternoon session.
The 30-year yield eased 2 basis points to
1.560 percent, just a touch above its near-decade low of 1.545
percent hit on Tuesday.
The yield on the long-dated tenor has eased 41.5 basis
points since the start of January, heading for its biggest
quarterly fall since April-June 2010.
"Yields have already dropped to levels that do not offer
further upside," Royal Bank of Scotland wrote in a note. "We
think it will be a real challenge to sustain current
10-year-plus JGB yield levels."
"While shorting is not a good choice at this point because
the possibility of buying at 1 trillion yen per month (by the
BOJ) cannot be ruled out, we advise straddle buying rather than
outright long positions."
The two-year yield was unchanged at 0.035
percent for the day after an auction of 2.9 trillion yen worth
of similar maturities attracted decent demand. It rose as much
as 1.5 basis points to 0.050 percent ahead of the bond sale.
The 0.10-percent coupon bonds were sold with a bid-to-cover
ratio of 5.48, up from 5.14 in the previous auction.