July 4, 2013 / 6:46 AM / 5 years ago

JGBs rise after robust demand at 30-year auction

* 30-yr yield's rise to 6-week high lures buyers
    * Japan investors last week were net sellers of foreign
    * JGB market shrugs off Kuroda's upbeat comments

    By Lisa Twaronite
    TOKYO, July 4 (Reuters) - Benchmark Japanese government bond
prices rose on Thursday, bolstered by solid demand at an auction
of 30-year debt.
    The JGB market shrugged off more signals that Japan's
economy could be improving, concentrating instead on favourable
supply and demand conditions, market participants said.
    "The auction results were strong, and JGBs held gains even
though yields came off their lows in the follow-through
trading," said Tomohiro Miyasaka, fixed income analyst at Credit
Suisse in Tokyo.
    "But yields were at a level at which it apparently made
sense for insurers to buy," he said.
    The 30-year yield earlier matched a six-week high touched in
the previous session.
    The Ministry of Finance offered 600 billion yen ($6.02
billion) of 30-year bonds with a coupon of 1.9 percent,
reopening the current issue.
    The notes sold at a lowest price of 100.10, in line with
market expectations, and drew bids of 3.96 times the amount
offered - slightly down from the previous sale's bid-to-cover
ratio of 4.06 times, but still strong.
    The tail between the average and lowest accepted prices came
in at 0.01, shrinking sharply from 0.32 at last month's
offering, underscoring demand for the bonds.
    The 10-year yield shed 1.5 basis points to
0.865 percent after dropping as low as 0.845 percent following
the auction results. The benchmark yield remains mired in a 0.80
to 0.90 percent trading range where it has been stuck the past
five weeks.    
    Ten-year JGB futures ended up 0.13 point at 142.48
after rising as high as 142.75. 
    The superlong tenor, which slipped ahead of the sale as
investors made room in their portfolios to buy, staged a strong
    The 30-year yield dropped 5.5 basis points to
1.845 percent, after rising as high as 1.905 percent ahead of
the sale.
    The 20-year yield fell 3 basis points to
1.725 percent.    
    The gains came even after Bank of Japan Governor Haruhiko
Kuroda told a quarterly meeting of the BOJ's regional branch
managers that the economy is on track to a steady recovery with
signs that inflation expectations are picking up.
    The BOJ on Thursday also raised its assessment of eight of
Japan's nine regional economies compared with three months ago,
another sign the positive effects of the government's
reflationary policies are spreading. 
    Rising Treasury yields and expectations of continued BOJ
easing at home could eventually prompt Japanese investors to
seek higher returns in overseas assets, but such a trend is not
yet in place. 
    Japanese Ministry of Finance data showed Japanese investors'
net selling of foreign bonds continued last week, for the
seventh straight week. 
    "We're paying cautious attention to developments in Europe,
and awaiting the U.S. payrolls report, but for now, domestic
supply conditions are the main factors in the JGB market," said
a fixed-income fund manager at a European asset management firm.
     The European Central Bank will hold its monthly meeting on
Thursday, against a backdrop of a political crisis in Portugal
which risks derailing that country's efforts to emerge from its
international bailout. 
   On Friday, the key U.S. jobs report for June is expected to
show payroll additions of 165,000 and a lower unemployment rate
of 7.5 percent, according to economists polled by Reuters. 
    U.S. financial markets will be closed on Thursday in
observance of the Independence Day holiday.
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