* 10-yr auction smooth
* Bid-to-cover ratio drops from previous sale
* 10-yr futures rise but short of 20-day moving average
* Govt Pension Investment Fund to review allocation model
TOKYO, Feb 5 Japanese government bonds rose on
Tuesday, with the benchmark yield backing off a three-week high
hit in the previous session amid fears about the impact of
political woes in Italy and Spain.
Disappointing U.S. factory orders data, a downward revision
to a report on U.S. business investment plans and a smooth sale
of 10-year JGBs also bolstered the market.
The Ministry of Finance's offering of 2.4 trillion yen ($26
billion) of 10-year notes garnered a lowest accepted price of
100.04. The sale reopened the current issue with a coupon of 0.8
The auction's tail - the gap between the lowest and average
prices - was 0.02, matching that of the previous sale, although
the sale drew bids of only 2.75 times the amount offered, down
from the previous sale's bid-to-cover ratio of 3.52 times.
"The sale was decent, though not spectacular, and there was
some follow-through buying in the cash market in the afternoon,"
said a fixed-income fund manager at a Japanese trust bank.
The 10-year JGB yield slipped 1 basis point
to 0.795 percent. The 10-year JGB futures contract
ended up 0.22 point at 143.90, though it still remained shy of
its 20-day moving average, now at 144.09.
Most market participants had expected that the 10-year sale
would go smoothly, after the benchmark yield moved away from a
six-week low of 0.720 percent hit on Jan. 25 to 0.805 percent on
Monday, its highest level since Jan. 15.
But some investors were concerned about the slightly larger
offering size. The ministry increased the monthly offering
amount by 100 billion yen this month, and will do the same next
month, to fund its supplementary budget.
"We started recommending receiving the 10-year tenor in
swaps," said Maki Shimizu, senior strategist at Citigroup Global
Spanish and Italian bond yields rose after a corruption
scandal prompted calls for Spanish Prime Minister Mariano Rajoy
to resign and on news of a probe of alleged misconduct involving
an Italian bank three weeks before national elections.
That hit risk appetite, helping to lift U.S. Treasuries and
sending the Nikkei stock average skidding 1.9 percent
off Monday's 33-month closing high.
The 20-year bond yield shed half a basis
point to 1.790 percent, while the 30-year bond yield
lost 1 basis point to 1.995 percent.
The chairman of Japan's Government Pension Investment Fund
told Reuters in an interview on Monday that the fund would
review its portfolio allocation model around April, as yields on
10-year JGBs were languishing at around 0.8 percent.
The GPIF is the world's biggest public pension fund, with
its assets of $1.2 trillion mostly held in JGBs.