April 18, 2013 / 6:41 AM / 4 years ago

JGBs rise across the curve after smooth 20-year auction

3 Min Read

* Superlong bonds outperforms after 20-yr sale meets solid demand

* Hopes of more frequent BOJ bond purchases support market

* MOF data show Japan investors sold overseas bonds last week

TOKYO, April 18 (Reuters) - Japanese government bond prices rose on Thursday, getting a lift from a downturn in investors' appetite for risk and relief from a smooth sale of 1.2 trillion yen worth of 20-year debt.

On Wednesday evening, the Bank of Japan held its second meeting with JGB market participants to discuss its new monetary policy framework unveiled on April 4, under which it will double its bond purchases in two years in a bid to defeat deflation.

A senior BOJ said after the meeting that the central bank will consider increasing the frequency of its purchases of long-term JGBs in response to dealers' concerns about market distortions.

"The market is much calmer today," said Tomohiro Miyasaka, a fixed-income analyst at Credit Suisse Securities.

"It was not just the auction results, which were in line with our expectations, but also yesterday's BOJ meeting with JGB dealers at which the possibility of more frequent purchases of long-term debt was discussed," he said.

The yield on benchmark 10-year bonds fell 1.5 basis points to 0.585 percent after dropping as low as 0.570 percent, while ten-year futures ended up 0.37 point at 144.46, compared to their morning close of 144.21 before the 20-year sale results.

BOJ policy board member Ryuzo Miyao said on Thursday that the central bank would be flexible in its market operations to ensure bond yields fell across the curve and short-term rates remained very low.

Bonds also benefitted from weaker stocks and commodities, which sagged on continuing concerns about global growth.

The Ministry of Finance offered the newly issued bonds with a coupon of 1.5 percent, below the 1.6 percent coupon on the latest issue.

Disappointing demand at a sale of 30-year bonds a week ago had raised concerns that many investors were sidelined by recent volatile market conditions, after the BOJ's radical monetary policy overhaul on April 4.

The 20-year JGBs sold at a lowest price of 99.45. The sale drew bids of 3.68 times the amount offered, up from the previous sale's bid-to-cover ratio of 3.11 times. The tail between the average and lowest accepted prices came in at 0.21, down slightly from 0.24 at last month's offering, indicating solid demand.

The superlong sector extended its morning gains in afternoon trade. The 20-year yield fell 4.5 basis points to 1.475 percent and the 30-year yield shed 4 basis points to 1.605 percent.

Weekly data from the ministry of finance showed that Japanese investors did not seek overseas debt despite the recent domestic market uncertainty and volatility, with last week showing net selling of foreign bonds to the tune of 332 billion yen.

Expectations of a surge of Japanese cash into overseas debt has pushed down yields in many bond markets around the world.

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