April 11, 2013 / 7:06 AM / 5 years ago

JGBs mostly rebound after BOJ announces operations

* Superlong zone underperforms after weak 30-year sale

* 10-yr futures end more than 1 point above morning close

* BOJ gives details of its Friday JGB purchases under new plan

TOKYO, April 11 (Reuters) - Japanese government bond prices mostly reversed their earlier losses after the Bank of Japan announced details of its second and third operations under its new easing regime, offsetting disappointing results at a 30-year sale.

The superlong zone remained in negative territory after weak demand at the first auction of any maturity since the central bank unveiled its radical monetary expansion scheme.

“The 10-year sector rebounded the announcement, however, the bad auction result has impacted on the over-10-year sector,” said a fixed-income fund manager at a Japanese asset management firm in Tokyo.

The BOJ announced shortly after midday that it will buy 300 billion yen ($3.0 billion) in government debt with maturities of 10 years or more on Friday, 1 trillion yen of JGBs with maturities from five to 10 years, 1.1 trillion yen in debt from the 1-5 year zone and 110 billion yen in debt maturing in one year or less.

Ten-year JGB futures, which had plunged on hedge-selling ahead of the auction, sharply recovered and ended just four ticks shy of their session high, up 0.57 point at 144.73.

Futures closed morning trade more than a whole point below that, down 0.47 point at 143.69, after dropping as low as 143.40. Futures had also dropped sharply in evening trade on Wednesday, prompting the Tokyo Stock Exchange to briefly halt trading.

Yields on benchmark 10-year bonds fell 3 basis points to 0.550 percent, sharply down from their morning high of 0.630 percent, which matched the previous session’s one-month high.

The benchmark yield plunged to a record low of 0.315 percent on Friday, in the wake of BOJ’s announcement a week ago that it will embark on the world’s most intense monetary stimulus programme, which will pump about $1.4 trillion into the economy in less than two years.

Short- and medium-term maturities also rose off their session lows on Thursday, with the five-year yield falling 8 basis points to 0.195 percent after hitting a fresh one-year high in the morning of 0.320 percent.

The two-year yield was flat at 0.120 percent after earlier rising as high as 0.140 percent, its highest since December 2011.


Most market participants had anticipated a less than stellar 30-year sale, as many investors opted to sit out and evaluate supply conditions in the wake of the BOJ’s monetary policy overhaul, so the sale was in line with grim expectations.

The Ministry of Finance offered 600 billion yen ($6.1 billion) of 30-year bonds, reopening issue number 38 with a coupon of 1.8 percent.

The bonds sold at a worse-than-expected lowest price of 105.20. The sale drew bids of 3.64 times the amount offered, up from the previous sale’s bid-to-cover ratio of 3.33 times. But the tail between the average and lowest accepted prices surged to 1.16 from 0.16 at last month’s offering, indicating weaker demand.

“Everyone was looking for a weak print. The expectations were very low, but if you look at the tail beyond one yen, that’s a big figure,” said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.

“I think it’s safe to say that the auction was rather weak, but it may not have been weaker than expected,” he added.

The 30-year yield rose 5 basis points to 1.500 percent, and the 20-year yield gained 5.5 basis points to 1.415 percent.

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