* Longer-dated tenors underperform, yield curve steepens
* MOF to auction 2.4 trln yen of 10-year bonds on Tuesday
By Dominic Lau
TOKYO, April 1 Japanese government bond prices
fell on Monday, as investors took profits at the start of
Japan's financial year after yields on benchmark 10-year debt
had fallen to a near-decade low and ahead of an auction of the
same maturity on Tuesday.
The 10-year yield added 1.5 basis points to
0.575 percent after earlier hitting a two-week high of 0.590
percent. It hit a near-decade trough of 0.510 percent on
Thursday and declined 23.5 basis points in January-March, its
sharpest quarterly fall in nearly three years.
"The market rallied towards the end of last fiscal year, so
it's natural for market participants to realise profits in the
beginning of the new book," said Naomi Muguruma, senior
fixed-income strategist at Mitsubishi UFJ Morgan Stanley
"They are also preparing themselves for coming auction."
The Ministry of Finance will sell 2.4 trillion yen ($25.5
billion) worth of 10-year debt on Tuesday.
Ten-year JGB futures fell as much as 20 ticks to
145.26 before ending unchanged at 145.46. Trading was relatively
active, with 35,166 contracts changing hands, down from Friday's
38,938 contracts but up from last week's daily average of
The June lead futures reached a record high of 145.98 on
Thursday, driven by mounting expectations that the Bank of Japan
will embark on aggressive stimulus policy.
The central bank will likely start open-ended asset
purchases immediately, rather than from 2014, and increase bond
purchases from the current roughly 2 trillion yen per month at
the two-day meeting that concludes on Thursday, sources familiar
with the BOJ'S thinking told Reuters.
"Despite today's market correction, the underlying market
sentiment remains firm. I think this correction will not
continue for long," Muguruma said. "Investors who are selling to
realise profit will have to buy back anyway sometime in the near
Royal Bank of Scotland recommended investors buy on dips at
the 10-year auction.
"We expect a new yield range of 0.40-0.55 percent to take
shape during April-June as the range of market anticipated yield
narrows after the BOJ takes new policy decisions," it said in a
"We advise investors to buy if tomorrow's auction occurs
with a 0.6 percent level, driven by selling activity at the
start of the new fiscal year," RBS said.
Superlong sectors underperformed and the yield curve
steepened. The 20-year yield rose 3 basis points
to 1.415 percent, rebounding from a near-decade low of 1.360
percent hit on Friday.
The 30-year yield put on 6 basis points to
Both the 20- and 30-year yields posted their biggest
quarterly falls in January-March since October-December 2008,
when the global economy was reeling from its worst recession
since the Great Depression in the 1930s.
Barclays Securities was more downbeat on the outlook of the
10-year yield, saying it could correct to around 0.650 percent
in the near-term if the BOJ fell short of market expectations.
"If a gap emerges between expectations and actual policy, we
believe the market could react to the extreme flattening that
occurred at the end of last week," the brokerage said in a note.
"We would be unsurprised by a short-term correction to the
mid-0.60 percent level in 10-year yields and 90 basis points
level for 10-20-year spreads."