March 8, 2013 / 6:51 AM / 6 years ago

JGBs jump, futures hit record after reassuring 30-year sale

* 10-yr futures rise to all-time record high

* 30-yr sale confirms demand for superlong maturities

By Lisa Twaronite and Dominic Lau

TOKYO, March 8 (Reuters) - Japanese government bond futures jumped to a record on Friday and the 20-year yield plunged after a decent sale of 30-year bonds implied solid demand for superlong maturities and prompted a wave of shortcovering.

The 10-year futures contract rose 20 ticks to 145.32, after reaching an all-time record peak of 145.50 in the afternoon session.

The 20-year yield tumbled as much as 11 basis points to 1.555 percent, moving back toward Tuesday’s low of 1.450 percent, its lowest since mid-2003.

At the Ministry of Finance’s offering of 700 billion yen ($7.4 billion) of 30-year bonds, some 400 billion yen were said to have sold to unknown bidders, a fairly large amount which some market participants said suggested demand from banks and other accounts seeking bonds.

“Today’s 30-year auction was a good timing for accounts to buy bond at the fiscal year-end, so there was likely demand from domestic lifers, and also it could be coming from pension funds who had been changing their positions out of domestic equities and foreign bonds into Japanese bonds,” said Tomohisa Fujiki, interest rate strategist at BNP Paribas.

“Those flows could be continuing until the end of the fiscal year,” he added.

The coupon on the latest offering was 1.8 percent, the lowest since July 2003. Despite the low coupon, the bonds sold at a better-than-expected lowest price of 99.45. The sale drew bids of 3.33 times the amount offered, down from the previous sale’s bid-to-cover ratio of 3.52 times, and the tail between the average and lowest accepted prices was 0.16, matching that at last month’s offering.

The 30-year bond yield dropped 5.5 basis points to 1.735 percent, moving back toward a 2-1/2-year low of 1.625 percent hit on Tuesday.

“There was a correction to moves earlier this week, but the auction results suggested that there is still real demand, so some used it as a buying opportunity in post-auction trading,” said a fixed-income fund manager at a Japanese trust fund.

The 10-year yield slipped 2 basis points to 0.650 percent, even though Tokyo’s Nikkei share average jumped 2.6 percent to close at a 53-month high, even as investors awaited the key U.S. payrolls report later in the day for signals on the strength of the U.S. recovery.

“People have priced in those domestic factors...the bullish factors out of Japan already. We are not certain about the U.S. outlook,” said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.

“It seems that risk-on trades are resuming, or maybe not. Payroll is the one key event that we need to monitor. The (JGB) market seems to be holding up well.”

Those upbeat domestic factors included mounting expectations that the Bank of Japan will buy more longer-dated bonds under a new leadership from April.

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