* 10-yr auction results in line with market expectations
* Dealer short-covering cited at 10-year sale
* Superlong tenor underperforms ahead of 30-yr sale on Thurs
* Japan's monetary base hits record high in June-BOJ data
By Lisa Twaronite
TOKYO, July 2 Benchmark Japanese government
bonds edged down on Tuesday, taking their cue from stronger
equities even after results of a 10-year debt sale came in
The Ministry of Finance offered 2.4 trillion yen ($24.06
billion) of 10-year bonds with a 0.8 percent coupon, reopening
the current issue. The ministry said it would reopen current
issues for the July and August auctions unless their yields were
to move by 20 basis points or more.
The notes sold at a lowest price of 99.22, in line with
market expectations, and drew bids of 2.41 times the amount
offered, down from the previous sale's bid-to-cover ratio of
3.14 times and the lowest since the March sale.
But the tail between the average and lowest accepted prices,
another gauge of demand, came in at 0.02, shrinking from 0.10 at
last month's offering.
"It was an interesting auction. The bid/cover was lower than
last month," said Shogo Fujita, chief Japan bond strategist at
Bank of America Merrill Lynch.
But the narrower tail suggests that some dealers indeed
bought to cover positions after they sold bonds in the 10-year
tenor to the Bank of Japan in the central bank's regular
outright purchase operations under its massive monetary stimulus
scheme, as market participants had expected.
"No one wants to be short with payrolls ahead," Fujita said,
referring to U.S. jobs data due on Friday.
Economists polled by Reuters expect payroll additions of
165,000 jobs for June.
The U.S. Federal Reserve has said it will begin to consider
tapering its bond-buying stimulus as the economy improves. Such
expectations have pushed up U.S. Treasury yields, which add to
upward pressure on JGB yields. A disappointing figure could
suggest the central bank will not slow its bond buys any time
The 10-year JGB yield rose 1 basis point to
0.890 percent, after earlier rising as high as 0.895 percent,
pushing the upper end of its range of 0.80 to 0.90 percent, in
which the benchmark yield has stuck for about a month.
Ten-year JGB futures ended down 0.02 point at
142.29, after earlier rising as high as 142.47, pushing lower
late in the session as stocks extended gains. The Nikkei stock
average ended up 1.8 percent.
The BOJ buys a monthly amount equivalent to about 70 percent
of new issuance, in a bid to hit a two percent inflation target
in two years.
As a result of the central bank's asset buying, Japan's
monetary base hit a record high in June, BOJ data showed on
Tuesday, rising to 173.1 trillion yen at the end of last month
from 159.2 trillion yen the previous month. The average monetary
base balance rose 36.0 percent in June from a year earlier to
163.5 trillion yen, also a record high.
"The JGB market has calmed down in recent weeks, and
volatility has been coming down, so it's safer to take positions
now than it was before," said a fixed-income fund manager at a
European asset management firm in Tokyo.
The superlong sector underperformed, with the 30-year zone
particularly weak ahead of a sale of that maturity later this
week. The finance ministry will offer 600 billion yen of 30-year
debt on Thursday.
The 20-year yield rose 2 basis points to
1.755 percent and the 30-year yield added 3 basis
points to 1.900 percent.