* Superlong tenor erases early slight losses and edges
* 10-year yield remains in 0.8 pct-0.90 pct range
* 10-year futures end up in relatively thin trade
By Lisa Twaronite
TOKYO, July 17 Solid demand at a sale of
five-year notes helped push up Japanese government bond prices
on Wednesday, though moves were slight amid caution ahead of
testimony from U.S. Federal Reserve Chairman Ben Bernanke later
in the day.
Investors will be watching Bernanke's testimony to Congress
on Wednesday and Thursday for clues on when the U.S. central
bank will begin to taper its $85 billion a month bond-buying
programme. The Fed chief's continued reassurance that U.S.
monetary policy will stay accommodative would keep a lid on U.S.
Treasury yields, and in turn on JGB yields.
"Those kinds of external factors will be this week's theme,
after today's 5-year auction is done," said Maki Shimizu, senior
bond strategist at Citigroup in Tokyo.
The benchmark 10-year yield was flat at 0.820
percent after wobbling between 0.815 percent and 0.825 percent,
still within the range of 0.80 percent and 0.90 percent in which
it has traded since late May.
The 10-year JGB futures contract ended up 0.11
point at 143.22 after rising as high as 143.26. Volume was a
relatively low 16,346 contracts, though higher than Wednesday's
volume of 12,278 contracts, which was the lowest since Dec. 25.
The five-year yield fell 1 basis point after
the auction results were announced to 0.290 percent, matching a
four-week low touched last week.
The superlong tenor erased its early slight losses, with the
30-year yield falling 1.5 basis points to 1.835
percent. The 20-year yield slipped 1 basis point
to 1.710 percent.
The Ministry of Finance offered 2.7 trillion yen ($27.19
billion) of newly issued five-year notes with a coupon of 0.3
percent, below the 0.4 percent coupons at the past two sales.
The notes sold at the lowest price of 100.01, in line with
most market expectations, and drew bids of 4.28 times the amount
offered - slightly down from the previous sale's bid-to-cover
ratio of 4.36 times, but still strong.
The tail between the average and lowest accepted prices came
in at 0.01, shrinking from 0.02 at last month's offering. A
smaller number means stronger demand for the bonds.
"People thought the sale would be okay, or at least decent,
and it turned out to be maybe slightly better than expected,"
Citigroup's Shimizu said. "But whether there will be demand
below 0.3 percent, that is the question. I'm a little bit
sceptical as to whether this rally can continue below that
According to International Financing Review, a Thomson
Reuters publication, one major Japanese bank seems to have
bought around 400 billion of the new 5-year notes, probably to
sell part of them to the Bank of Japan under the central bank's
operations for its massive asset-buying stimulus.
Minutes of the BOJ's June policy-setting meeting released on
Wednesday showed some board members proposed offering longer-
dated fixed-rate funds in its market operations to curb
excessive interest rate fluctuations, but others said the
measure could be misinterpreted as a change to the bank's
monetary policy framework.
At that meeting, the BOJ left monetary policy unchanged as
widely expected, maintaining its pledge to expand the supply of
money at an annual pace of 60 trillion to 70 trillion yen to
achieve its 2 percent inflation target in two years.