TOKYO: Benchmark Japanese government bonds rose on Wednesday, as disappointing US earnings sapped investors' appetite, while the superlong sector continued to underperform on worries about Japan's fiscal situation.
DuPont and United Technologies posted disappointing quarterly results on Tuesday, raising concerns about the impact of a global economic slowdown on earnings. Japan's Nikkei stock average was trading lower after seven sessions of gains, lending support to bonds.
Growing expectations of more monetary easing steps by the Bank of Japan underpinned bonds, particularly shorter maturities. The central bank is leaning towards additional easing at its Oct. 30 meeting, according to sources familiar with its thinking.
The BoJ now buys bonds with up to three years left to maturity in its asset purchase programme, and many market participants and strategists expect them to eventually extend this. The central bank's policy has anchored short-term yields.
"The BoJ is supporting the short end, and the 10-year sector is awfully rich, but both foreigners and Japanese institutions aren't rushing in to buy on dips at the long end," said a fixed-income fund manager at a Japanese asset management firm.
Concerns that the Japanese government will face delay in the passage of a deficit-financing bond bill made some investors hesitant to buy the long end, market participants said. While recent superlong auctions have proved that healthy demand exists, many investors appear to be waiting to buy at higher yields.
"There is no rush to buy. Even though Japan's economy is not improving much, JGB yields could track those on Treasuries to some extent if the US economy shows signs of improvement," said a fund manager at a Japanese trust bank.
The outlook for JGB yields depends on whether global share prices are simply in a soft patch or have entered a full-scale correction, said Chotaro Morita, chief rates strategist at Barclays Securities Japan, in a note to clients.
"In the case of a soft patch, expectations for additional BoJ easing would likely fuel yen depreciation and a correction in the undervaluation of Japanese equities, thereby leaving JGB yields with limited downside," he said.
The benchmark 10-year JGB yield shed 1 basis point to 0.770 percent, while the 10-year JGB futures contract ended morning trade up 0.10 point at 144.08.
But yields on 30-year debt gained 1 basis point to 1.960 percent, their highest level since April 5. Yields on 20-year bonds were flat at 1.695 percent.
Comments
Comments are closed.