TOKYO: Japanese government bonds yield curve steepened slightly on Monday as long-dated debt yields rose ahead of an auction the next day while those on the shorter-end dipped.
Trading was quiet, however, ahead of a U.S. Presidential election debate due later in the day and with many Japanese market players on the sidelines ahead of their half-year book closing on Sept 30.
The 30-year JGB yield rose 2.5 basis points to 0.490 percent while the 40-year JGB yield rose 1.5 basis points to 0.565 percent.
The Ministry of Finance will auction 500 billion yen ($4.96 billion) 40-year JGBs on Tuesday, its first major bond auction after the Bank of Japan last week shifted to a new policy framework to control long-term bond yields.
Investors had many reasons to be cautious about the auction. The issue amount was raised to 500 billion yen from the previous 400 billion yen.
Many market players could be reluctant to take on new positions ahead of their book closing.
Still, there is rising expectation that the yield curve will eventually flatten as the BOJ has said it will keep buying JGBs at the same pace as before.
The BOJ bought a total of 1.25 trillion yen of conventional JGBs with one to ten years to maturity in its operation in line with market expectations. It also bought 25 billion yen of inflation-linked JGBs.
Many market players think the BOJ will eventually need to taper its bond buying to keep bond yields around its new target.
"To maintain the 10-year yield around zero percent, the BOJ will have to reduce its bond purchase. If they keep buying the same amount, yields will keep falling," said Hideaki Chida, chief fixed income strategist at NLI Research Institute.
Bank of Japan Governor Haruhiko Kuroda said in his speech on Monday that the pace of the BOJ's government bond buying may fluctuate under its new yield curve control, but added that there would be no policy implication to such changes.
The 10-year JGB yield fell 0.5 basis point to minus 0.060 percent. It has moved between plus 0.005 to minus 0.065 percent since the BOJ's policy shift last week announcing its intention to guide it "around zero percent.".
The five-year yield dipped 0.5 basis point to minus 0.195 percent while the two-year yield fell 1.0 basis point to minus 0.235 percent.
The 10-year JGB futures price rose 0.10 point to 151.86 , though their trading volume was more than 40 percent below the average over the past year.
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