Ten-year JGB yield hits 1-mth low, curve steepens
Tue Nov 8, 2011 2:59am EST
* Mid-, long-term yields hit 1-month low as stocks fall
* Superlongs soft before 40-yr sale, on issuance hike view
* 10-30-year yield spread steepest since September
TOKYO, Nov 8 (Reuters) – Japanese government bond pricesedged up on Tuesday, with the five- and 10-year yields hittingone-month lows, as Tokyo shares slumped on concerns about Europeand an accounting scandal at camera maker Olympus .
But 30- and 40-year maturities bucked the trend on sellingahead of a 40-year JGB auction on Thursday and worries aboutfuture issuance increases, steepening the yield curve to a levelnot seen in the last two months.
Lead 10-year JGB futures rose 0.10 point to 142.81 while the yield on the cash 10-year JGBs slipped 1.0 basis pointto 0.975 percent , its lowest since Oct. 6.
Tokyo stocks were hurt by Olympus’ admission that thecompany covered up losses on securities investments dating backto the 1980s.
“Today, Tokyo share prices fell much more than people hadexpected because of Olympus. that drove JGBs higher,” said KeikoOnogi, senior JGB strategist at Daiwa Securities.
But Onogi also said that the 10-year yield is unlikely tofall below its recent bottom of 0.965 percent, hit twice inrecent months, as many investors tend to take profits at thoselevels.
The five-year yield briefly dropped 0.5 basis point to aone-month low of 0.335 percent .
Strong buying in the Finance Ministry’s re-offering onTuesday of bonds that are in circulation — called a liquidityenhancing auction — also helped the market, particularly in the20-year sector.
Still, the looming auction of 400 billion yen in 40-yearJGBs on Thursday undermined the longest end of the curve. Market players are nervous as the previous 40-year sale inAugust drew weak demand.
“The curve is steepening ahead of the auction. Butthere’s also expectation that the trend will change after theauction,” said Katsutoshi Inadome, strategist at Mitsubishi UFJMorgan Stanley Securities.
The 30-year bond yield rose 1.0 basis point to 1.955 percent while the 40-year bond yield rose2.5 basis points to 2.205 percent.
The spread between the 10- and 30-year yields rose to 98basis points, matching a peak hit three times between August andSeptember, and edging closer to high of 101.5 basis points hitin the days after the earthquake in March.
While some market players expect superlong bonds to reboundafter the auction, market players also said expectations thatthe government could increase sales of 30-year bonds in the newfiscal year from April also undermined the sector.
The government is expected to announce the JGB sales planfor the next fiscal year in late December when it compiles thenew year’s budget.
The market showed no reaction to the news that thegovernment struck a deal with the opposition to redeem bonds tofinance reconstruction after the quake in 25 years, rather than10 years.
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