November 1, 2012 / 5:50 AM / 5 years ago

JGBs fall but off session lows after solid 10-year sale

TOKYO, Nov 1 (Reuters) - Japanese government bonds fell on Thursday, but were off the session’s lows after a 10-year sale went as smoothly as most market participants had expected.

The Ministry of Finance offered 2.3 trillion yen ($29 billion) worth of 10-year notes, reopening the number 325 issue with a coupon of 0.8 percent for the third time.

The ministry sold the bonds at a lowest accepted price of 100.20, in line with market expectations. The bid-to-cover ratio was 4.05, up from 3.40 at the previous tender, and the tail between the average and lowest accepted prices shrank slightly to 0.01 from 0.02 at the previous sale.

Reopenings are offerings of securities with the same terms and conditions as an existing one, used to increase the liquidity of an outstanding issue.

“It is noteworthy that last week’s 5-year sale was also a reopen, as was the 20-year sale before that. This shows how stably JGBs have been trading lately,” said a fixed-income fund manager at a Japanese asset management firm.

Against this backdrop of low volatility, recent 10-year sales have met solid market demand, as the benchmark bond is the most liquid and has recently offered higher carry and rolldown compared with other sectors, market participants said.

In a carry and rolldown strategy an investor buys a bond and aims for capital gains, as a bond’s value increases as it matures if the yield curve is steady.

The 10-year yield added half a basis point to 0.775 percent, after rising as high as 0.785 percent before the auction results, its highest since Oct. 23. Benchmark yields remain solidly within the 4 basis-point range between 0.755 percent and 0.795 percent in which they have moved since Sept 24.

Ten-year JGB futures were down 0.13 point at 144.11, but above a session low of 143.91 before the auction results.

The recently-battered superlong sector stabilized, though activity was said to be thin. Yields on 20-year debt fell 1 basis point to 1.680 percent, while those on the 30-year bonds lost half a basis point to 1.945 percent.

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