TOKYO: Japanese government bonds extended gains on Thursday, with the benchmark yield dipping to its lowest level in three weeks after worries that Europe's debt crisis is worsening prompted investors to dump riskier assets.
But gains were limited as market participants were cautious of chasing prices higher before a 1.1 trillion yen ($14.1 billion) 20-year JGB auction on Thursday.
In cash bonds, the 10-year JGB yield fell 1 basis point to 0.980 percent, hitting its lowest level since late November. The five-year yield was flat at 0.345 percent, staying in the middle of its 0.3-0.4 percent range from the past six months.
March 10-year JGB futures rose 0.12 point to 142.40, hovering near their highest level in three weeks and capped near the Ichimoku cloud which is seen as major resistance.
Japan's Ministry of Finance set a 1.7 percent coupon on the new 20-year JGBs, unchanged from their coupon at the previous sale in November, which was the lowest since August 2010. The MOF releases the auction results at 12:45 p.m. (0345 GMT).
Demand from buy-and-hold investors such as life insurers was expected to support prices in the offering amid the ongoing debt crisis in the euro zone. Some buyers, however, could hold off as the supply outlook for the maturity is unattractive compared to other maturities, market participants said.
"Twenty-year bond prices are not cheap as their yield is not far from September's level (at an 11-month low) ... with the possibility of an increase in next fiscal year's debt issuance and Japan's fiscal outlook, people won't chase prices higher in longer-dated maturities," said a fund manager in Japan.
The market is watching developments on a proposed consumption tax hike. The ruling Democratic Party plans to agree by the end of the year on a proposal to double the 5 percent sales tax to pay for rising welfare costs.
But there is strong opposition within the party, particularly as support for Japanese Prime Minister Yoshihiko Noda's government drops. Those who disapprove of his cabinet now outnumber those who support it for the first time, newspaper polls showed on Tuesday.
German officials rebuffed calls for the European Central Bank to intervene to stem the region's debt crisis, saying instead that European countries must stick to new budget discipline. Italian borrowing costs soared to a record high on Wednesday.
Japan's Nikkei share average fell 1.3 percent on Thursday.
Comments
Comments are closed.