* 10-year sector dips slightly after auction
* 30-year bonds retain strength after weak U.S. data
* Expectations of more bond buying by BOJ supports market
By Hideyuki Sano
TOKYO, April 2 Japanese government bond prices
dropped on Tuesday following some disappointment on the result
of a 10-year JGB auction, though expectations of more aggressive
bond buying by the Bank of Japan underpinned the market.
Longer maturities fared better, with the 30-year bond yield
briefly matching a near-decade low hit last week, as soft U.S.
manufacturing data hurt share prices -- to the benefit of
low-risk low-return bonds.
The yield on the current 10-year JGBs rose 0.5 basis point
to 0.565 percent, pulling further away from
near-decade low of 0.510 percent hit last week. The 10-year JGB
futures shed 0.10 point to 145.36.
"There was a bit of adjustment after a weak auction result,"
said Le Ngoc Nhan, strategist at Morgan Stanley MUFG Securities.
But superlong bonds, such as 20- and 30-year bonds,
outperformed as investors snatched up these maturities as yields
on shorter paper have fallen to painfully low levels.
The 30-year bond yield fell 4.0 basis points to 1.510
percent, at one point matching near 10-year low
of 1.505 percent hit on Friday. The 20-year yield also fell 3.5
basis point to 1.385 percent.
"The adjustment in Japanese share prices spurred buying in
JGBs. I suspect European shares will also fall after the long
weekend. It's difficult to short JGBs now," said a fund manager
at a Japanese asset management firm.
Japan's Nikkei stock average dropped to a three-week
low after the weak Institute for Supply Management data
suggested the U.S. economy was losing some momentum at the end
of the first quarter as the effects of a tighter fiscal policy
In addition, expectations that Bank of Japan's new Governor
Haruhiko Kuroda will adopt an unprecedented level of monetary
easing helped to support the market ahead of his first policy
meeting over April 3-4.
Many market players expect the Bank of Japan to increase its
bond buying and extend the maturity of its bond buying, though
there is no clear consensus as to exactly what the central bank
"Until we see more clarity on the BOJ's stance on money
market operations and how it will try to bring down the whole
yield curve, the market is likely to be volatile," said Morgan
Some market players see risk of a setback in JGBs after the
market has rallied for weeks on hopes of more bond buying by the
Bank of Japan. The 10-year yield fell 23 basis points last
quarter, its biggest fall in nearly three years.
"People will think the market will be running out of
supportive factors after the BOJ meeting," said Tohru Yamamoto,
chief bond strategist at Daiwa Securities.
But others say an increase in the BOJ's buying will tighten
an already strong demand for fixed income from Japanese
"I think the 10-year yield will fall below the record low of
0.430 percent," said the Japanese fund manager. "We know pushing
yields too low is risky. But we also need to follow the market,"