JGB futures fall, glitch hits cash bond trade before sale

TOKYO: Japanese government bond futures fell on Thursday as money flowed into stock markets and on brokers' hedge selling ahead of a 30-year auction as they had difficulty trading cash bonds as usual due to a technical glitch at Japan Bond Trading Co.

Japan Bond Trading Co (JBTC) halted the broker-to-broker trading system it operates for JGBs in the morning due to the glitch. It said it would resume operations at 12:25 p.m. (0325 GMT).

Despite the glitch, the Ministry of Finance proceeded with the auction of 700 billion yen ($9.1 billion) in 30-year JGBs as normal.

JBTC is the country's biggest bond broker and handles cash JGB interdealer activity from more than 200 entities including brokers and banks. Its JGB market prices are used as de facto market benchmarks.

"I don't know how much the technical problem is affecting the auction as a large amount of trading is done on JBTC's platform, but some people are using other interdealers to hedge their positions for the auction," said a trader at a US brokerage firm.

* December 10-year JGB futures were down 0.24 point at 142.24 by midday, after marking their lowest since Sept. 30 at 142.18. Volume increased to more than 17,000 lots by midday, surpassing Wednesday's full-day volume.

Market participants said appetite for the auction from buy-and-hold investors such as life insurers had grown as Thursday's correction in the JGB market helped yields to rise and therefore made it easier for them to bid.

But a trader from a Japanese bank said dealers may limit their participation in the auction due to the technical glitch.

The MOF reopened the 2.0 percent coupon No.35 30-year JGBs for the first time for Thursday's auction. The auction results will be released at 12:45 p.m. (0345 GMT). The 30-year yield closed up 1.5 basis points at 1.910 percent on Wednesday.