JGBs gain even after BOJ trims purchases, 10-year yield turns negative

TOKYO: Japanese government bonds firmed on Friday, with the benchmark 10-year yield turning negative for the first time since mid-November, shrugging off the Bank of Japan's move to trim the amount of shorter maturities it offered to buy in its purchase operations.

JGBs mostly took their cue from firmer Treasuries, which gained on Thursday after U.S. consumer spending data showed continuing low inflation, and as simmering tensions with North Korea kept up demand for the safe haven bonds.

Japanese Finance Minister Taro Aso said on Friday that he was cancelling a planned trip to the United States for preparatory economic talks because of national security uncertainties posed by North Korea after it fired a missile that flew over Japan on Tuesday.

The 10-year cash JGB yield inched down half a basis point to minus 0.005 percent, dipping into negative territory for the first time since Nov. 16, 2016.

Earlier on Friday, the BOJ reduced its purchase amount of three- to five-year JGBs to 300 billion yen ($2.72 billion), from 330 billion at its previous operation for that zone on Monday.

"The central bank reduced its purchases in the 3-5 zone, and nonetheless, yields in the afternoon slightly declined, or were unchanged," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

"I think it shows the underlying supply/demand conditions in that the BOJ has bought JGBs to a realistic limit already, so there are no major market participants who have excess JGBs to sell to the BOJ," she said.

Therefore, she said, the BOJ will have to keep reducing purchases in order to control the yield curve as it has pledged to do. The central bank aims to keep the 10-year yield around zero percent.

On Thursday, the BOJ released the details of its September purchase operations, saying it plans to buy 300 billion to 500 billion yen of five- to 10-year JGBs at each operation for those zones. That was below its range of 350 billion to 550 billion yen in August.

In the superlong zone, the 20-year JGB yield was flat on the day at 0.535 percent, while the 30-year JGB yield was also flat at 0.820 percent.

Shorter maturities were also steady, with the two-year JGB yield flat at minus 0.170 percent and the five-year JGB yield flat at minus 0.145 percent.

Also underpinning bond market sentiment, data released earlier on Friday showed Japanese companies curbed their pace of investment in plant and equipment in April-June, suggesting the government will revise down its initial rosy estimate of economic growth for the second quarter.

The September 10-year JGB futures contract finished up 0.10 point at 151.22.