TOKYO: Japanese government bond prices edged higher on Thursday, pushing the 10-year yield to a fresh three-month low, with the super-long tenor outperforming as funds bought to extend the duration of their portfolios.
The 10-year JGB yield fell half a basis point to 0.710 percent, its lowest since May 10, which was the last day it traded below the 0.70 percent threshold to drop as low as 0.625 percent.
According to IFR, a Thomson Reuters publication, many regional banks are selling 10-year JGBs and illiquid corporate bonds for the second consecutive session to lock in profits, while some pension funds have been buying JGBs for their month-end duration adjustments.
Bank of Japan board member Yoshihisa Morimoto said in a speech on Thursday that the average duration of JGBs the BOJ buys under its operations should be in a range of 6-8 years.
Ten-year JGB futures ended morning trade up 0.09 point at 144.38 after earlier touching an intraday high of 144.40, their highest since May 10, when they rose as high as 144.45.
The yield curve flattened as the super-long sector also gained, with the yield on the 30-year JGB falling 2 basis points to 1.745 percent, its lowest since June 4, while the 20-year yield slipped 1.5 basis points to 1.635 percent, its lowest since June 10.
The spread between 10 and 5-year yields narrowed to 44.5 basis points, its lowest since May 20 and down from a nearly four-month peak of 57.5 basis points on June 11.
Downbeat retail sales data also underpinned demand for JGBs. Sales fell 0.3 percent in July from a year earlier, far short of the 0.6 percent gain projected by economists polled by Reuters, which suggests that consumer spending is losing some momentum.
The Ministry of Finance offered 2.9 trillion yen ($29.68 billion)of 2-year JGBs with a 0.1 percent coupon. The auction was expected to proceed smoothly as the BOJ now buys much of the issuance of that maturity through its asset purchase programme.
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