Thursday, 14 June 2012 09:42
TOKYO: Japanese government bond prices were mostly higher on Thursday, with investors continuing to shy away from riskier assets as Europe's debt crisis rages on, although the 30-year note dropped as participants made room to buy at the day's 20-year sale.
The 1.2 trillion yen ($15 billion) 20-year auction is expected to generate firm demand, with investors looking to pick up so-called 'safe-haven' assets on fears that Greece could be forced to leave the euro zone and that contagion could spread from a banking crisis in Spain. The bond has a coupon of 1.7 percent.
Greece will hold elections on Sunday that could determine whether the country remains in the currency bloc. Fears of an exit from the common currency have been underpinning demand for fixed-income assets, although German Bunds have begun to weaken due to that country's exposure to the debt crisis.
"The 20-year isn't moving much ahead of the sale, but the weakness in the 30-year suggests some players were getting ready to buy, which also suggests that demand will be decent, particularly with upcoming redemptions as well as this weekend's Greek election," said a fixed-income fund manager at a Japanese bank.
JGB buying ahead of a quarterly redemption on June 20 is also expected to support demand at the sale, market participants said.
The 10-year JGB yield was flat at 0.855 percent, while the 10-year JGB futures contract for September ended morning trade up 0.02 point at 143.57.
The 20-year yield fell half a basis point to 1.685 percent. The 30-year yield added 1.5 basis points to 1.895 percent, its highest level since April 27.
The five-year yield sank half a basis point to 0.225 percent.
The spread between 10- and 20-year yields stood at 83.0 basis points after rising as high as 83.5 points, its widest since March last year. That means the 20-year bonds have low yields relative to 10-year notes and suggests an incentive for investors to buy at Thursday's sale.
The Bank of Japan began its regular monthly two-day meeting on Thursday, at which it is widely expected to stand pat on monetary policy, holding its fire as it monitors the outcome of the Greek election.
Copyright Reuters, 2012