* 30-year auction tepid, not as bad as some had feared
* Investors awaited auction for bargain-hunting
* Nikkei on verge of bear market
* Falling market volatility seen drawing back investors
By Hideyuki Sano
TOKYO, June 6 Japanese government bond prices
gained on Thursday as bargain-hunting emerged after some anxiety
over how a 30-year bond auction would fare and as Tokyo stocks
buckled, dropping to a two-month low.
Some market players expect further gains in JGBs as
volatility appears to be easing after spiking in the past couple
of months, which could prompt investors to be less wary about
The latest move comes as concerns that the U.S. Federal
Reserve may reduce its stimulus rattles global equity markets,
benefiting bonds including JGBs, with Friday's U.S. jobs data
seen as having potential to cement such concerns.
The benchmark June 10-year JGB futures price rose 0.24 point
to 143.02, after a choppy session, in which bond
futures mostly moved in the opposite direction to volatile Tokyo
A break of Monday's high of 143.23 could open the way for a
test of 143.56, a 50 percent retracement of the contract's fall
from a record peak in early April to a two-year low hit in late
The Nikkei share average fell 0.9 percent to a
two-month low and was on the verge of being considered to be in
bear market territory, which is often defined as a 20 percent
decline from a recent peak.
JGBs also extended gains on relief that the results of a 600
billion yen ($6 billion), 30-year JGB auction, turned out to be
tepid, but was not as disastrous as some had feared.
"The results were hardly impressive but the market had had
very low expectations, going into the auction. So there was no
surprise," said Keiko Onogi, senior JGB strategist at Daiwa
"There seems to be buying from investors who were looking to
scoop up the 30-year bonds after weak auction results," she
The auction's tail -- the gap between lowest and average
price -- was 0.32, above the average of 0.219 in the last 10
auctions and the second worst in the past few years after a
record 1.16 set in April.
The off-the-run 38th 30-year bond yield fell 0.5 basis point
to 1.820 percent,
Shorter maturities fared better, with the current 10-year
yield dipping 2.0 basis points to 0.835 percent.
Although the BOJ's massive easing in April drove up the
10-year yield to a 13-month high of one percent last month,
buyers were coming back as Japanese stocks lost momentum.
With the 10-year yield mostly stuck in 0.8-0.9 percent range
in the past few weeks, there is a growing sense that JGBs, which
had been battered after the Bank of Japan announced an
aggressive stimulus programme in April, are finally regaining
"As market volatility is gradually falling, JGBs will be
bought back from an oversold position. The 10-year is likely to
fall below 0.8 percent," said Le Ngoc Nhan, strategist at Morgan
"There's a rumour that the BOJ may introduce a long-term
liquidity funding operation. It may not do so in the next policy
meeting, but such speculation could drive down short-term bond
yields. So I expect the market to continue to bull-steepen,"
The BOJ's next policy meeting is scheduled for June 10-11.