TOKYO: Benchmark Japanese government bonds rose on Wednesday as slumping stocks offset the supply concerns that weighed on longer maturities ahead of the next day's 30-year sale.
The Nikkei share average skidded 2 percent to a two-month closing low on fears that slowing global growth would hurt upcoming corporate earnings results.
The JGB yield curve steepened as investors sold superlong debt to make room in their portfolios to buy at the auction, with the spread between the 10-year and 30-year yields rising as high as 1.165 points, its widest since March 2008.
The Ministry of Finance will offer 700 billion yen ($8.9 billion) of 30-year bonds on Thursday with an expected coupon of 1.90 percent, matching that of the previous sale which was set below the 2.0-percent level for the first time since July 2003.
Despite the lower coupon, demand was decent at last month's sale, and many investors and expect a smooth sale this month as well with the 30-year bond at its current levels.
"I'm not pessimistic. I think there is enough value in the 30-year bond," said Tadashi Matsukawa, head of Japan fixed income at Pinebridge Investments in Tokyo.
"The 30-year sector has underperformed a lot versus the 10-year sector, so I think there's value at this level, and investors are willing to buy," he said.
JGBs also got support from firm US Treasuries prices, which rose after the International Monetary Fund warned about slowing growth on Tuesday.
With the risk that Japan's gross domestic product growth will turn negative over the next few quarters, and in the absence of any fiscal stimulus activity, strategists at RBS Securities Japan say it is unclear whether monetary policy can sustain inflation expectations.
"Investors, hence, might at least prefer bull flattening in anticipation of deflation concerns. We expect sharp movement in a reversal because steepening appears to be the existing consensus position," they said in a note to clients on Wednesday.
The 10-year yield fell half a basis point to 0.765 percent, moving back towards an eight-week low of 0.755 percent hit last week.
Ten-year JGB futures ended up 0.03 point at 144.18, after rising as high as 144.23.
Futures briefly broke below their 14-day moving average on Tuesday for the first time since pulling above it on Sept. 24. But they retook it before the close and on Wednesday they remained solidly above that technical level, now at 144.09.
Superlong maturities drooped, with yields on 30-year debt adding 1.5 basis points to 1.930 percent, and those on 20-year bonds rising 1 basis point to 1.660 percent.
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