February 5, 2013 / 3:10 AM / 5 years ago

JGB gains checked by supply concerns ahead of 10-yr sale

TOKYO, Feb 5 (Reuters) - Japanese government bonds rose on
Tuesday, with the benchmark yield backing off a three-week high
hit in the previous session after weak U.S. data and fears about
the impact of political woes in Europe whetted investor appetite
for safe-haven debt.
    * But supply concerns capped gains, as the Ministry of
Finance offered 2.4 trillion yen ($26 billion) of 10-year notes,
reopening the current issue with a coupon of 0.8 percent.
    The ministry increased the monthly offering amount by 100
billion yen this month, and will do the same next month, to fund
its supplementary budget.
    * Most market participants said the sale would go smoothly,
after the benchmark yield moved away from a six-week low of
0.720 percent hit last month. 
    * "With intermediate JGB yields declining on expectations of
monetary easing and superlong JGB yields coming under upward
pressure in anticipation of the new administration's
reflationary policies, the 10-year JGB yield has gradually
become neutral relative to the curve," strategists at Bank of
America Merrill Lynch said in a note to clients.
    * The 10-year JGB yield slipped half a basis
point to 0.800 percent, while the 10-year JGB futures contract
 ended morning trade up 0.15 point at 143.83.   
    * "With the end of the fiscal year approaching at the end of
next month, some investors who have been holding off, hoping to
buy at better yield levels, might decide to buy at this auction
after all," said a fixed income fund manager at a European asset
management firm. 
    * Spanish and Italian bond yields rose in the previous
session, after political worries heightened investors' fears
that those countries would be able to maintain their commitment
to solving their debt problems.
    U.S. Treasuries climbed on these concerns, as well as
disappointing U.S. factory orders data and a downward revision
to a report on U.S. business investment plans. 

    * The 20-year yield was flat at 1.795
percent, while the 30-year bond yield lost half a
basis point to 2.000 percent.
    * On Monday, the chairman of Japan's Government Pension
Investment Fund told Reuters in an interview that the fund would
review its portfolio allocation model around April, as yields on
10-year JGBs were languishing at around 0.8 percent.
    GPIF is the world's biggest public pension fund, with its
assets of $1.2 trillion mostly held in JGBs.
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