TOKYO; Most Japanese government bonds edged down on Thursday, as bullish US data stoked investor appetite for riskier assets, though month-end buying bolstered the superlong tenor.
Funds often buy longer-term debt at the end of a month to extend the duration of their portfolios. That buying supported longer durations even as rallying equities took away some of the appeal of safe-haven fixed income assets.
"The stock market's doing relatively well, so you have a bit of selling in JGB futures, but at the same time, you have strong buying at the long end of the curve," said Le Ngoc Nhan, a strategist at Morgan Stanley.
"There's not only extension, but also the fact that the curve has steepened quite a lot recently, making the back end cheap," he said.
Life insurer bond duration has reached about 12 years due to steady extension operations over the past decade, according to strategists at Barclays.
"If yield levels undergo a sharp upshift, extension demand could strengthen, but under the current low interest rate environment, operations to maintain current portfolio duration may be becoming the norm," they wrote in a note to clients on Thursday.
Stocks rose after US data showed demand for long-lasting manufactured goods rebounded more than expected in May, a gauge of planned business spending increased and pending home sales rose in May.
But fixed-income losses were kept in check as investors remained doubtful that a two-day summit of European Union leaders beginning on Thursday would result in any tangible steps towards alleviating the euro zone's debt crisis.
"The risk-off tone has somewhat faded, which is weighing on JGBs, but markets remain wary of any European developments, and expectations have faded that anything will emerge from the EU summit," said a fixed-income fund manager at a Japanese trust bank.
The 10-year JGB futures contract for September ended down 0.09 point at 143.81, after earlier rising to a more than three-week intraday high of 143.94.
In cash bond trading, the yield curve slightly flattened by late afternoon as the superlong sector fared better than its counterparts. The 20-year yield was flat at 1.645 percent and the 30-year yield slipped half a basis point to 1.865 percent.
The five-year yield added half a basis point to 0.210 percent, and the 10-year JGB yield rose 1 basis point to 0.815 percent, nudging away from a nine-year low of 0.790 percent hit on June 4.
The benchmark Nikkei hit a six-month low on June 4, but has rallied 7.7 percent since then, and its dividend yield is still outperforming that of benchmark JGBs.
The Topix carried a dividend yield of 2.47 percent as of Wednesday, yielding 165.7 basis points over the 10-year JGBs, not far from a 3-1/2-year high of 181.6 basis points hit on June 4, according to Thomson Reuters Datastream.
Japan's spread was much lower compared with a gap of 272.4 basis points between Germany's bluechip DAX index and the 10-year Bunds, but was higher than 68.2 basis points offered by the US S&P 500 over 10-year Treasury yields.
Comments
Comments are closed.