TOKYO: Japanese government bond prices erased gains on Thursday after a sale of 20-year bonds met with lacklustre demand, though losses were limited amid growing expectations for more US easing and downbeat Chinese manufacturing data
Strategists and market participants had expected a smooth sale, but most also said the 20-year tenor was expensive relative to other maturities.
"We retain a bullish view for the rest of the month, and I don't think this result says it all about market sentiment. This could be the bottom of the market for the near term," said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.
The auction of 1.2 trillion yen ($15.2 billion) worth of 20-year debt had a bid-to-cover ratio of 2.38, down from the previous auction's 3.32, despite a higher coupon of 1.6 percent compared with last month's coupon of 1.5 percent.
It also had a wider tail of 0.24 between the average and lowest accepted prices, up from the previous sale's 0.05 and suggesting weaker demand.
The benchmark 10-year JGB futures contract was down 0.01 at 143.58 after ending morning trading up 0.15 point at 143.74.
The 10-year yield was flat at 0.820 percent after rising as high as 0.825 percent following the auction results. It fell to a one-week low of 0.800 percent in morning trading.
US Treasuries rose on Wednesday after minutes of the US Federal Reserve's August meeting released showed the central bank was likely to deliver another round of monetary stimulus "fairly soon."
Fears about the impact of a slowdown in China rose after the HSBC Flash China manufacturing purchasing managers index(PMI) fell to 47.8 in August, its lowest level in nine months, as export orders fell and inventories piled up.
The 20-year bond yield rose 1 basis point to 1.675 percent after falling as low as 1.645 percent in the morning, while the 30-year bond yield added half a basis point to 1.855 percent.
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