Benchmark JGBs edge higher, underpinned by liquidity auction

TOKYO: Benchmark Japanese government bonds edged slightly higher on Tuesday, as investors took advantage of the previous day's dip as a buying opportunity.

An auction by the Japan's Ministry of Finance of off-the-run JGBs, intended to enhance market liquidity, drew solid demand, also underpinning JGBs.

The benchmark 10-year JGB yield edged down half a basis point to 0.015 percent, while 10-year JGB futures  ended up 0.07 point at 151.05.

"I think a lot of banks are still under-invested" in JGBs, said Tadashi Matsukawa, head of fixed income investment in Tokyo at PineBridge Investments. "They sold a lot of JGBs and foreign bonds back in February and March, and now they want to buy on dips."

Tokyo markets will be closed for three days from May 3 for a string of holidays known as the Golden Week. Investors tend to buy bonds ahead of the Golden Week, Matsukawa said.

Last week, JGB yields plumbed their lowest levels since last year, as investors braced for the first round of the French presidential election on Sunday.

JGB yields jumped in line with global yields on Monday as the market's favoured candidate won the vote and investors trimmed their safety bids, and also as the Bank of Japan reduced its purchases of three- to five-year bonds in its buying operations.

On the short end on Tuesday, the two-year JGB yield  and the five-year yield were flat at minus 0.215 percent and minus 0.160 percent respectively.

The market shrugged off comments from BOJ Deputy Governor Kikuo Iwata, who told parliament that the central bank was conducting a simulation study of how it could end its massive monetary stimulus in the future although it is still far from achieving its inflation target.

Iwata said the BOJ did not want to publicise the exit-strategy simulation because doing so would cause market confusion, given that the BOJ's 2 percent inflation goal remains distant.

The BOJ will begin a two-day policy meeting on Wednesday, at which investors expect it to hold policy steady. It is also set to offer a more upbeat assessment of the economy than it did last month, as a pick-up in overseas demand bolsters exports and factory output, sources have told Reuters.