* Ten-year futures up but volume lowest since Dec. 25
* Longer-maturities up 0.5 to 1.5 basis point
* Long-end of yield curve steepens further
By Dominic Lau
TOKYO, July 24 Yields on benchmark 10-year
Japanese government debt dipped on Wednesday, matching a
two-month intraday low touched in the previous session after the
Bank of Japan offered to buy more bonds as part of its stimulus
drive to revive the economy.
Longer-maturities underperformed, ahead of the Ministry of
Finance's auction of 1.2 trillion yen ($12 billion), 20-year
bonds on Thursday, leading a steepening in the long-end of the
The 10-year yield was down 0.5 basis point at
"We have the BOJ operations that have been more active than
before," said Maki Shimizu, senior strategist at Citigroup in
Tokyo. "When there is no major catalyst in the market, that's
when the BOJ operations have become more notable."
The BOJ offered to buy 950 billion yen worth of JGBs with
residual maturities from one to 10 years. The Japanese central
bank stunned financial markets on April 4, promising to inject
$1.4 trillion into the economy in less than two years.
The 10-year JGB futures added 0.09 point to 143.79,
hovering near a two-month intraday high of 143.85 hit on
Tuesday, with 11,860 contracts changing hands, the lowest since
"In terms of the supply-demand cycle, the market should
start to think about next week's 10-year auction fairly soon.
With yields below 0.80 percent and no participation by the BOJ,
whether there will be sufficient demand at the auction is a
major concern," Barclays Securities wrote in a note.
"The period from the end of this week to the start of next
week, when the market starts to more fully discount the 10-year
auction, could mark one turning point for a reversal in 10-year
yields," it added.
The spread between the 10- and 20-year yield rose to a
four-month high of 95 basis points, while that between the
benchmark bonds and the 30-year debt climbed to 108.5 basis
points, also a four-month high.
The steepening curve suggests economic improvement pushing
up longer-dated yields and the impact of the BOJ bond-buying
capping yields on short- to medium-maturities.
"Although it is far too early to say whether Abenomics is
working, we have reviewed developments across a broad range of
indicators and found that they all appear to be heading in the
right direction," Societe Generale wrote in a report.
"So for now, Abenomics appears to be succeeding; however,
turning it from short-term boost to long-term success will
require key structural reforms."
The 20-year yield added 0.5 basis point to
1.720 percent, while the 30-year yield was up 1.5
basis points at 1.855 percent.
The JGB market shrugged off further evidence of slowing
growth in China after activity in the country's manufacturing
sector slowed to an 11-month low in July as new orders faltered
and the job market weakened.
Hurt by the slowdown in China, Japan's exports rose less
than expected last month.
"If (China) goes into recession, that's another story. So
far we don't see heightened risk for that," Shimizu said, adding
that the market was more focused on next week's U.S. non-farm
payrolls data, which could give further clarity on when the
Federal Reserve is likely to scale back its $85 billion a month