* Five-year yield falls to 0.130 pct
* MOF sells 5-year JGBs with record low coupon of 0.1 pct
By Dominic Lau
TOKYO, Feb 19 Japanese government bonds rose on
Tuesday, with the five-year yield hitting a record low, after
Bank of Japan minutes revealed board members had discussed
buying longer-dated government debt at their January meeting.
The five-year yield slipped 1 basis point to
0.130 percent to a record low, helping set the coupon of an
auction of 2.7 trillion yen ($28.73 billion) worth of similar
maturities at 0.1 percent, the lowest since Japan started
issuing five-year bonds in 2000.
Still, the sale drew robust demand, with a bid-to-cover
ratio of 3.81, up from 3.44 and 3.54 in the previous two
auctions, as investors pile into short- and medium-term sectors
on expectations that the BOJ will take further steps to whip
deflation and achieve its target of 2 percent inflation.
A fixed income fund manager at a Japanese asset management
firm in Tokyo said the finance ministry would be happy with such
a low coupon rate.
"The market is boiling," he said. "The market has already
factored in a rate cut from 0.1 percent to zero or whatever. The
market has already included the APP (asset purchasing programme)
duration from three years to five years.
"I guess the upside is pretty much limited from here in
terms of the two-year and five-year sectors," he added.
The Bank of Japan minutes showed a few members of the
nine-member board said one option could be to extend the
duration of government bonds purchased to around five years, a
move that would help push down the longer-end of the yield
Under its asset-buying programme, the BOJ buys government
bonds with up to three years until maturity, as well as other
assets such as corporate debt, to pump money into the economy.
Prime Minister Shinzo Abe has called for the central bank to
adopt aggressive monetary policy to pull the world's
third-largest economy out of doldrums as part of his election
Since mid-November, the yen has lost more than 16 percent
against the dollar, while Tokyo's Nikkei share average
has rallied 31 percent.
Maki Shimizu, senior strategist at Citigroup Global Markets
Japan, said the BOJ minutes heightened expectations that the
central bank will extend the maturity of government bonds
purchased to five years after the new governor takes office.
BOJ Governor Masaaki Shirakawa will step down on March 19
along with his two deputies.
Economic Minister Akira Amari said on Tuesday the government
will nominate the governor and the deputy governors after Abe
returns from a trip to the United States on February 21-24.
The 10-year yield dipped 0.5 basis point to
0.735 percent after trading as much as 0.730 percent to a
three-week low, while 10-year JGB futures gained 11
ticks to 144.38, breaking above their five-day moving average of
Yields on 30-year debt edged down 1 basis
point to 1.905 percent, reaching a two-month low. But those on
20-year bonds added 0.5 basis point to 1.740
The long-end of the yield curve has been supported lately by
buying interest from life insurers ahead of Japan's financial
year ending March 31.
Yet it is far from pricing in any expectations of actual
inflation. "If the market were seriously to price in even 1
percent inflation on a trend basis, 20's would likely be over
2.5 percent, far above current levels," said Neale Vincent,
strategist at Nomura Securities in Tokyo.