August 14, 2012 / 6:36 AM / 5 years ago

JGBs ease slightly but 20-year yield stays flat

TOKYO, Aug 14 (Reuters) - Japanese government bond prices were mostly weaker on Tuesday, although the 20-year yield was flat suggesting investors saw value in that part of the yield curve, analysts said.

The JGB market also shrugged off minutes of the Bank of Japan’s July meeting, which showed a few BOJ board members said the central bank should not rule out any options in advance and stand ready to act if substantial risks emerge as a result of Europe’s debt woes.

“I don’t think this is having an impact on the market today. It’s more of the quiet, low volatility, low volume market,” said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.

“Ten-year and 30-year sectors are slightly weaker and the 20-year sector is flat, probably reflecting some sentiment in the market that the 20-year sector will be the one to keep the money in.”

Yields on both 10- and 30-year bonds inched up 0.5 basis points, to 0.790 and 1.830 percent, respectively, while the 20-year yield was flat at 1.615 percent.

“The 20-year sector looks relatively cheap versus the long-term sector,” Shimizu said. “The level itself for the 10-year sector is still below 0.80 percent.”

“It hardly goes beyond that level, meaning dip buying pressure is around 0.80 percent. That inversely shows that investors do not prefer low levels below 0.80 percent. It’s more of an extension need to seeking higher yield. It makes sense to have the 20-year tenor rather than the 10-year for now at the current level.”

Ten-year JGB futures slipped 3 ticks to 143.96 but held above their five-day moving average at 143.92.

As many investors were away for Japan’s summer “Obon” holidays, trading volume in 10-year futures remained light, with 14,477 contracts changing hands, up from a one-month low of 12,361 contracts on Monday but down from last week’s average of 31,510.

Barclays Securities recommended buy at-the-money call options on JGB futures at 144, saying yields were higher compared to the end of the previous quarter and that there was an incentive to at least hold the current level, even though investors tend to take profit as Japan’s first-half fiscal year approaches.

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