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 decent 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 at 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 to close at 144.20, up 0.01 point on the day.
‘There was some hedge-related selling both before and after the auction, but futures ended nearly flat, ahead of the ECB,’ said a fund manager at a Japanese asset management firm.
The 10-year cash bond yield edged up half a basis point to 0.780 percent after the auction announcement, but erased that move late in the session and fell half a basis point to 0.770 percent.
Benchmark yields remained well above a nine-year low of 0.720 percent hit last month.
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.
‘There’s a lot to digest tonight, with the ECB, and the (U.S.) nonfarm payrolls tomorrow,’ said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
Bank of Japan board member Yoshihisa Morimoto warned on Thursday that Europe’s deepening debt crisis could delay an expected pickup in external demand.
Superlongs faced the most selling pressure on Thursday, with the 20-year yield adding 1 basis point to 1.610 percent, while the yield on the 30-year note rose 2 basis points to a three-week high of 1.820 percent.
The spread between the 20-year yield and the 10-year yield widened to a five-week high of 84 basis points.
Weekly capital flow data released by the finance ministry on Thursday showed that Japanese investors turned net sellers of foreign bonds in the week through July 28, unloading 8.9 billion yen worth, 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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