TOKYO: Japanese government bond prices sagged slightly on Thursday as traders sold the futures to hedge against the five-year bond auction later in the day.
March 10-year JGB futures, which will expire on Friday, fell 0.02 point to 142.71, while the June contract fell 0.09 point to 142.36. Volumes of the two contracts are almost the same, with traders expecting a shift in the benchmark contract as soon as Thursday.
The Finance Ministry set a 0.3 percent coupon on its 2.5 trillion yen five-year bond offering as expected.
The current five-year cash bonds last traded flat at 0.285 percent, a tad above a 16-month low of 0.280 percent touched on Wednesday, although the new issue, with maturity three months after the current issue, is expected to yield around 0.3 percent.
Market players say the latest offer should attract strong demand due to expectations that the BOJ will keep easy policy and may even enhance its asset purchase programme by either increasing asset buying or extending maturity of bonds it buys through its asset purchase programme.
But market players also said the five-year sector looks expensive after relentless buying in the sector following the BOJ's surprise easing last month, and that the yield may have limited room for further declines.
The spread between five- and 20-year yields stood at 147 basis points, a hair below a six-month high of 147.5 basis points hit on Wednesday.
The 20-year yield was flat at 1.755 percent while the current 10-year bond rose 1.0 basis point to 0.985 percent, near the top of a recent range between 0.94 percent to 1.0 percent.
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