TOKYO: Benchmark Japanese government bonds were slightly lower on Thursday, giving up early gains after the results of a 30-year sale showed lacklustre demand that failed to impress investors.
The auction of 700 billion yen ($8 billion) of 30-year bonds, which was followed within half an hour by a highly unusual Ministry of Finance announcement of slightly amended results, found the market jittery about supply concerns as a new government proceeds with aggressive economic stimulus.
The sale, a reopening of the No.37 issue with a 1.9 percent coupon, drew bids that were 3.52 times the amount offered, down from the previous sale's bid-to-cover ratio of 4.08. The MOF's original announcement had indicated the ratio was 3.53.
"It was just a minor correction," said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.
But the timing of the small glitch was potentially embarrassing for the ministry, coming on one of the days of regular talks with JGB investors and primary dealers on how it will allocate this year's additional issuance of JGBs.
"The focus will be where the MOF will increase issuance," Shimizu said. "That's the kind of market temperature we have to check from today's meeting."
The government will sell around 6 trillion yen more in government bonds than it originally planned for the fiscal year to end-March, a government source told Reuters on Wednesday, as it prepares an extra budget with economic stimulus spending.
The government is set to approve the 13.1 trillion yen extra budget next Tuesday. Around 10 trillion yen will be spent on public works and incentives to spur corporate investment.
In cash trading, the superlong maturities clung to some of their early gains after the sale, although they pared them considerably.
Yields on 30-year bonds fell half a basis point to 2.00 percent, a threshold they exceeded on Tuesday for the first time since December 2011. The 30-year yield fell as low as 1.990 percent during intraday trade.
The yield on the 20-year bond was down half a basis point at 1.785 percent, but off its intraday low of 1.775 percent.
Despite the backdrop of uncertainty about new supply, market participants' expectations of more easing this month from the Bank of Japan are likely to prevent sharp losses.
The BOJ will consider easing monetary policy again at its Jan. 21-22 meeting, likely by increasing its 101 trillion yen asset buying and lending programme, according to sources familiar with the central bank's thinking.
On Thursday, the 10-year JGB yield rose half a basis point to 0.825 percent, moving back toward a 4-1/2 month high of 0.840 percent hit on Monday and away from a session low of 0.815 percent.
The benchmark 10-year JGB futures contract ended up 0.03 point at 143.46.
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