TOKYO, Aug 2: Japanese government bonds remained weak at the longer end of the yield curve on Thursday, after a 10-year sale met with average demand, but uncertainty ahead of the European Central Bank meeting scared away potential bargain hunters.
The Ministry of Finance offered 2.3 trillion yen ($29.2 billion) of 10-year notes with a coupon of 0.80 percent, the same coupon as last month’s auction. It drew bids of 2.64 times the amount offered, below the previous auction’s bid-to-cover ratio of 3.10, but the auction’s tail of 0.02 matched last month’s offering.
Ten-year JGB futures extended their slight losses after the auction results, touching a low of 144.09 before edging back up to 144.15, still down 0.04 point on the day.
The 10-year cash bond yields edged up half a basis point to 0.780 percent, after trading flat ahead of the auction announcement. They remained well above a nine-year low of 0.720 percent hit last month.
Superlongs came under the most selling pressure, with the 20-year yield adding 1.5 basis points to 1.615 percent, while the yield on the 30-year note rose 2 basis points to 1.820 percent.
‘There’s a lot to digest tonight, with the ECB, and the nonfarm payrolls tomorrow, so you’d expect the 10-year to slide a bit,’ said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
Investors are divided on the possible outcome of a European Central Bank meeting later on Thursday. A German newspaper reported that ECB President Mario Draghi will unveil a plan to use both the ECB and the European Stability Mechanism to buy bonds from Spain or Italy.
Bank of Japan board member Yoshihisa Morimoto warned on Thursday that Europe’s deepening debt crisis could delay an expected pickup in external demand.
Weekly capital flow data released by the finance ministry earlier on Thursday showed that Japanese investors turned net sellers of foreign bonds in the week through July 28, unloading 8.9 billion yen, after six weeks of net buying.
Overnight, the U.S. Federal Reserve took no new monetary steps at the conclusion of its two-day policy meeting but was more downbeat on the economy, keeping the door open for further bond buying, known as quantitative easing.
(AGENCIES)
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