TOKYO: Japanese government bond prices rose on Friday after a better-than-expected five-year debt auction, despite improving investors' risk appetite with Tokyo's Nikkei average rebounding from a more than 6 percent slide in the previous session.
The 2.7 trillion yen ($29 billion) of five-year bonds sold by Japan's Ministry of Finance attracted a bid-to-cover of 4.36, up from 3.39 in the previous debt sale.
"The results were on the better side of expectations," said Naomi Muguruma, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. "Probably due to recent instability in equities and the FX market, I think the risk-avoidance money went into this five-year auction."
The five-year yield eased 3.5 basis points to 0.305 percent.
The 10-year yield fell 4.5 basis points to 0.815 percent, keeping within the past two weeks' trading range of 0.80 to 0.90 percent, while 10-year futures gained 0.46 point to 142.80, breaking above their five-day moving average at 142.66.
"Yesterday the Nikkei was down 6 percent and the JGB market didn't go up," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments. "What's driving the Nikkei is that JGB (prices) going higher, then the Nikkei is going higher."
The Nikkei climbed 1.9 percent on Friday, while JGB prices were also higher. Government bond prices usually rise when investors are risk averse, or vice versa.
The 30-day implied volatility on JGB futures remained well about 5 percent compared with just above 2 percent before the Bank of Japan shocked investors in April with massive stimulus measures to pull the economy out of doldrums.
JGBs volatility spiked as the BOJ's aggressive pursuit of inflation - an enemy of bond investment - stunted markets while its big bond-buying plan has reduced market liquidity.
Prices on longer-maturities were also higher. The 20-year yield and the 30-year yield both added 1 basis point, to 1.670 and 1.795 percent, respectively.
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