TOKYO, Jan 30 (IFR) - Japanese government bond prices rose on Thursday, as investors sought the safety of fixed-income assets as stocks slumped in the wake of the U.S. Federal Reserve’s decision to continue withdrawing its stimulus.
JGBs opened sharply higher, in the wake of a sharp fall in U.S. Treasury yields and stock prices overnight after the Fed’s well-flagged decision to trim its monthly bond-buying programme by a further $10 billion a month.
But JGBs pared gains in thin trading, after yields on the current 10- and 20-year bonds briefly fell as low as 0.610 percent and 1.450 percent, respectively, approaching their recent multimonth lows posted on Monday.
Profit-taking by bond investors was limited, as the Nikkei stock average briefly lost as much as 530 points in morning trading before finishing the day down 377 points, or 2.5 percent.
Even passive pension funds stayed largely sidelined despite their impending need to purchase superlong JGBs for their month-end duration adjustments, according to money managers and traders.
The yield on 10-year JGBs slipped 1.5 basis points to 0.620 percent. One corporate pension fund manager at a domestic asset management company told IFR this morning that only the Bank of Japan and passive pension funds would buy the current 10-year JGBs at present levels. The benchmark 10-year JGB yield has strong resistance below 0.600 percent, according to several money managers.
Thursday’s monthly sale of 2.9 trillion yen ($28 billion) of two-year JGBs was slightly stronger than expected. Though the lowest accepted price (100.03) was in line with market expectations, the tail and the bid-to-cover ratio improved from the previous month, indicating greater demand.
Several money managers and JGB traders told IFR this afternoon that only the BOJ would buy two-year JGBs in the secondary market at a yield of 0.083 percent to 0.084 percent, as domestic financial institutions, including Japan Post Bank, can get 0.1 percent interest on current deposits with the BOJ.
Japan Post Bank participated in the JGB auction directly for the first time on Thursday, as it was permitted to do so in all JGB auctions as of Jan 14. Until recently, Japan Post Bank had purchased new JGBs via primary dealers in the primary market.
Lead March JGB futures fluctuated in a range of 0.21 point before finishing the day up 0.17 point at 144.72.