TOKYO: Japanese government bonds skidded on the long end on Thursday after a lacklustre auction of 20-year bonds, but 10-year futures turned higher on dip-buying after the sale.
The Ministry of Finance offered 1.2 trillion yen of 20-year bonds, reopening the number 141 issue with a 1.7 percent coupon, matching that of the past four sales.
The bonds sold at a lowest price of 99.05, far short of market expectations of 90.25.
The sale drew bids of 3.05 times the amount offered, down from the previous sale's bid-to-cover ratio of 3.11 and below the one-year average of 3.30. The tail between the average and lowest accepted prices widened to 0.20 from 0.19 last month.
Many market participants had expected a smooth sale because 20-year bonds had recently become cheap on the curve, particularly against 10-year bonds.
However, others feared that 20-year debt looked expensive compared with swaps, due to the yen's correction from a 2-1/2 year high of 90.25 yen against the dollar on Monday.
"Some were expecting a good one, but we didn't see decent bids at the auction because people were probably waiting for the dip, just to pick up the bottom," said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.
"Once it sold off, futures got stronger, and the short end of the curve is also supporting futures to some extent," she said. "That means that people still want to buy, meaning they're not bearish."
The benchmark 10-year JGB futures contract ended up 0.08 point at 144.45, six ticks below its intraday day high and moving back toward a nearly six-week high of 144.57 hit on Tuesday. Futures fell as low as 144.25.
The 20-year yield added 2.5 points to 1.755 percent, while the 30-year bond yield added 2 basiis points to 1.975 percent.
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