TOKYO: Japanese government bond prices slipped on Wednesday, with the 10- and 20-year yields briefly hitting two-week highs, after an auction of 300 billion yen ($3.1 billion ) long-term JGBs drew tepid demand.
But bargain-hunting from investors at those high yields helped the market curb the losses, with falls in some emerging markets adding to the risk-averse mood - to the benefit of JGBs.
Ten-year JGB futures fell 0.24 point to 142.33, while the yield on the 10-year JGBs rose 1.0 basis point to 0.880 percent.
The Finance Ministry's enhanced liquidity auction, in which the ministry re-offers existing 20-, and 30-year JGBs, drew mediocre demand, briefly pushing up the benchmark 10-year yield to 0.9 percent for the first time in almost two weeks.
But the rise in yields attracted some bargain-hunters. That level was seen as a good buying opportunity as the 10-year yield has mostly moved in the 0.8-0.9 percent range for the past four weeks, except for two short-lived spikes above 0.9 percent.
The 20-year bond also rose to a two-week high of 1.705 percent before stepping back to 1.695 percent, still up 1.0 basis point on the day.
JGBs fell for a second day after they slipped on Tuesday as the Bank of Japan held off on taking additional measures, disappointing investors who were expecting the central bank to extend the maximum duration of cheap fixed-rate funds.
Such a step is considered to be a possible tool to bring down bond yields by stabilising short-term bond yields at low level -- just as the European Central Bank's three-year funding helped to bring down Italian and Spanish bond yields.
Although BOJ Governor Haruhiko Kuroda said on Tuesday the central bank could take such an action in the future, the fact that the BOJ's latest meeting ended in the shortest period of time in a year, with its policy announcement coming before noon (0300 GMT), suggested the BOJ board does not see an urgent need for action any time soon, analysts added.
"The BOJ doesn't seem to be willing to forcefully bring down bond yields. I suspect investors are still cautious about buying JGBs. They will not buy JGBs aggressively below 0.8 percent in the 10-year yield," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.
The five-year yield rose 1.5 basis point to 0.325 percent , though it is still far below two-year high of 0.455 percent hit in May.
Still, market players say JGBs are likely to be supported as a strong rally in Japanese share prices since the BOJ's April easing appeared to have lost momentum after a 20-percent plunge since late May, dampening speculation investors could rotate their funds out of bonds to stocks.
In addition, recent weakness in some emerging markets, from Brazil, Turkey and South Africa to Thailand, is making investors more cautious about risk-taking, helping JGBs by default.
Takafumi Yamawaki, chief rates strategist at JPMorgan, said buying may gather pace in the next quarter.
"It make take some time for yields to come down. Even though many people in the trading room now think it's right time to enter the market, the management (of institutional investors) are still cautious. They may change their strategy only after the turn of quarter," he said.
Comments
Comments are closed for this article.