TOKYO: Japanese government bond prices rose on Tuesday, with the benchmark yield moving away from a one-month high hit in the previous session, buoyed by rising risk aversion and a smooth 5-year sale.
Gains were seen limited, however, ahead of a sale of 1.2 trillion yen ($12.25 billion) worth of 20-year bonds on Thursday, at which market participants said many real-money investors such as Japanese life insurers were expected to hold off on buying in recently volatile market conditions.
"I don't think that anybody is super confident. The 5-year went okay, but in the 20-year sector, according to press interviews with life insurers, they all say they will take a cautious stance, at least at the beginning of the year," said Naomi Muguruma, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.
"I think market sentiment is still fragile, so we have to see that auction result," she said.
JGB trading has been highly volatile since the BOJ's massive easing on April 4. The central bank said on Tuesday that it would hold another meeting with market participants on Wednesday, after a meeting last week to discuss its new easing plan under which it will double its bond purchases in the next two years.
Investors are hoping that the BOJ irons out some of operational wrinkles in its bond purchases, and also clarifies the motives behind its purchases.
"They're [the BOJ] saying they want to reduce term premium, and keep the whole yield curve down, but at the same time, they heavily skewed their purchase programme to the 10-year sector of the curve with very little increase in terms of the back end of the curve, in terms of allocations," said Le Ngoc Nhan, strategist at Morgan Stanley MUFG Securities.
"They say one thing, and they're doing another," he added.
The yield on the current 10-year JGB fell 5.5 basis points to 0.590 percent, moving away from a one-month high of 0.650 percent touched on Monday, but still some way off the record low of 0.315 percent struck a day after the BOJ unveiled its sweeping stimulus. It fell as low as 0.575 percent earlier.
The 10-year JGBs futures contract ended up 0.55 point at 144.09 after rising as high as 144.28 in the afternoon session.
Stocks around the region dropped and risk aversion rose after recent data raised concerns that growth in China and the US might be slowing, which boosted the safe-haven appeal of fixed-income assets.
The Ministry of Finance offered 2.7 trillion yen of five-year JGBs, its second bond auction after the Band of Japan's radical monetary policy overhaul earlier this month and the first auction of that maturity.
The latest issue carries a 0.3 percent coupon, compared to the previous sale's 0.1 percent coupon. The yield on five-year notes fell to a record low of 0.095 percent last month.
The bonds sold at a lowest price of 100.10. The sale drew bids of 3.09 times the amount offered, slightly down from the previous sale's bid-to-cover ratio of 3.12 times. The tail between the average and lowest accepted prices came in at 0.05, up from 0.01 at last month's offering, but still indicating solid demand.
The five-year note extended gains after the results, its yield losing 2 basis points to 0.250 percent, moving away from a one-year high of 0.320 percent hit last Thursday.
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