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JGBs up as Tokyo shares swing lower
March 12, 2014 / 3:35 AM / in 4 years

JGBs up as Tokyo shares swing lower

TOKYO, March 12 (Reuters) - Japanese government bonds edged up on Wednesday, as share prices swung lower in Japan and across Asia on concerns about the economic uncertainty in China and United States as well as political tensions in Ukraine.

The benchmark 10-year cash yield dipped 0.5 basis point to 0.620 percent, while June 10-year futures climbed 0.09 point to 144.84.

Still, reaction to the Nikkei’s 2.2 percent slide was relatively mild, having become a familiar sight for a market that has become largely numbed to external factors due to the Bank of Japan’s massive purchases of government debt.

The amount bought by the central bank as a part of its quantitative easing programme equates to roughly 70 percent of newly issued debt.

The market showed muted response to a report in the Nikkei business daily on Wednesday that the Ministry of Finance is considering requiring brokerages and large banks to take part in bond sales known as liquidity-enhancing auctions.

The idea, which would form a part of market reforms, was floated during a regular meeting between the MOF and primary dealers last year.

The MOF conducts liquidity-enhancing auctions to sell extra amounts of outstanding JGBs that are in demand in the market.

Currently it is the only auction in which participation is voluntary.

“The new regulation may not have much market impact, as participants will be required to take part in the sales but won’t actually have to buy,” said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Morgan Stanley.

“Still, it may help smoothen out these auctions, as those taking part in the sales will have to better gauge investor demand before presenting their requests to the MOF,” Inadome said.

Before each liquidity-enhancing auction primary dealers present the MOF with requests for particular JGB issues they would like to purchase.

The MOF will increase the amount sold at liquidity-enhancing auctions to 700 billion yen ($6.78 billion) per sale starting in April from the current 600 billion yen, and liquidity may improve as a result of the new changes, said Hidenori Suezawa, chief bond strategist at SMBC Nikko Securities.

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