November 14, 2013 / 3:30 AM / 4 years ago

JGBs mostly up ahead of 5-year auction

TOKYO, Nov 14 (IFR) - Japanese government bond prices were mostly up at midday on Thursday, ahead of the outcome of an auction of 5-year notes later in the session.

The 7-year/30-year yield curve steepened by 2 basis points from Wednesday. A relatively sharp fall in U.S. Treasury yields on Wednesday from their 2-month highs had some positive impact on prices of 5-year to 10-year JGBs, despite firmer Tokyo stocks.

In the morning session, several regional banks bought the current 5-year JGB (issue #115 with a coupon of 0.2 percent, maturing in Sept 2018) at 0.1975 percent ahead of the results of the 5-year auction.

As widely expected, the Ministry of Finance set the coupon of the new 5-year JGBs at 0.2 percent, unchanged from the previous month, re-opening the current issue.

JGB market participants widely expect the 5-year JGB auction to go smoothly, as regional banks and pension funds seem eager to buy the new 5-year notes at current levels on expectations that the Bank of Japan will continue to buy in the 5-year to 10-year zone under its massive JGB purchase program for at least a few years.

Big domestic life insurers and Japanese megabanks were largely sidelined in the morning session, traders said. One corporate pension fund manager told IFR this morning that a majority of Japanese financial institutions hope that JGB yields will rise gradually, with the curve steepening similar to the Treasury yield curve.

At midday, the yield on the current 5-year note was down 0.5 basis point from Wednesday at 0.20 percent, while the 10-year yield also fell 0.5 basis point to 0.595 percent.

In the superlong zone, the 20-year yield lost 0.5 basis point to 1.475 percent, ahead of next Tuesday's monthly offering of 20-year JGBs. The 30-year yield rose 0.5 basis point to 1.625 percent.

Lead December JGB futures moved in a 145.00-145.09 range before finishing the morning session up 0.19 point at 145.09.

The JGB market shrugged off data released early on Thursday that showed Japan's economy slowed less than expected in the July-September period and is expected to pick up pace in the current quarter as consumers spend now to beat a tax rise next year, although business investment came in sharply below market forecasts.

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