TOKYO: Japanese government bond prices slipped on Tuesday as investors caught up after a long holiday weekend and digested an upbeat US employment report that dimmed the appeal of safe-haven fixed-income assets.
On May 2, the last trading day before a four-day long holiday weekend here, the benchmark 10-year yield had skidded to a nearly two-week low, bolstered by the Bank of Japan's asset-buying operations. The central bank did not announce any new operations on Tuesday.
The 10-year yield rose 3 basis points to 0.585 percent after rising as high as 0.590 percent. It headed away from its Thursday close of 0.555 percent, which was its lowest level touched since April 19.
"Before the holiday, bond sentiment was strong, but that was before Friday's US employment report. Some long positions were built up, and they're now being taken off," said a fixed-income fund manager at a Japanese trust bank in Tokyo.
The Nikkei stock average ended up 3.6 percent to break above 14,000 for the first time since June 2008, as the market caught up after the extended holiday and reacted to last the US jobs data.
"There are big cross-currents in the market, where you have the BOJ buying a huge amount of bonds but economic expectations are picking up," said Neale Vincent, strategist at Nomura Securities in Tokyo.
For every 10 trillion yen of JGBs the BOJ buys under its massive quantitative easing scheme, yields dip roughly 4 or 5 basis points, he estimated, suggesting the central bank's whole asset-buying stimulus program through the end of 2014 could push yields as much as 70 basis points lower than where they otherwise might be.
"If the government is right and the economy improves to around 3 percent nominal growth by the end of 2014, fair value for 10-year JGBs, without the supply-demand impact of QE, would be somewhere around 2 percent," he added.
The 10-year futures contract finished down 0.39 point at 144.73, moving away from Thursday's intraday high of 145.15, which had been its highest peak since April 8.
"Supply and demand continues to reflect BOJ buying operations, as confirmed by last week's 10-year JGB auction. In short, we believe it remains difficult to sell at 10-year yields of 0.6 percent with the effective decrease in supply," said Chotaro Morita, chief rates strategist at Barclays Securities Japan.
Many investors will probably continue to view 0.6 percent as a dip-buying level for 10-year JGBs, he said in a note to clients on Tuesday.
Japan's finance ministry has no auctions of new or reopened issues scheduled this week. On Wednesday, it will conduct a liquidity-enhancement auction for old 20- and 30-year bonds.
The superlong tenor underperformed, with the 20-year JGB yield adding 3.5 basis points to 1.485 percent, while the 30-year yield rose 3.5 basis points to 1.615 percent.
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