JGBs slightly lower

Japanese government bonds ended steady to slightly lower on Thursday after failing to hold earlier gains, ending the quarter lower as a devastating earthquake put worries about Japan's deteriorating fiscal health in focus.
As the Japanese government is expected to compile its first supplementary budget as early as next month for reconstruction after the quake and subsequent tsunami, investors are reluctant to bid up aggressively despite an expected slowdown in the economy, leading analysts to expect range-bound trade in the near future.
"Profit-taking is expected below 1.2 percent in the 10-year yield, but buying is expected on dips as JGBs remain the main product in asset management among Japanese investors," said Hidenori Suezawa, chief strategist at Nikko Cordial Securities. Japanese banks are expected to have ample cash even though some companies are increasing borrowing from banks after the earthquake, Suezawa said. In the money market, players said demand for funds remained very low, sending repo rates to 0.074 percent on Thursday compared to the 0.10 percent interest rate paid by the Bank of Japan for excess reserves. The money market has abundant cash with current account deposits at the BOJ over 40 trillion yen ($491.1 billion), staying near record highs.
"We could say JGBs were firm overall with futures outperforming as a result of ample cash in the money market," a trader at a Japanese bank said. "With all the money, it is hard to sell notes especially in short and medium maturities. Steadiness in short term paper spread out to longer maturities as well," he said. Thus June 10-year futures stayed positive for most of the day before late rise in Japanese share prices sent bond prices down. The June contract rose to as high as 139.84, a little below the top of the cloud on Ichimoku charts around 139.88, before slipping back to close at 139.55, down 0.02 point on the day.
Cash bonds ticked down as well although most domestic investors remained on the sidelines as the fiscal year ends on Thursday, and ahead of US jobs data on Friday at 1230 GMT. The 10-year yield rose 1.5 basis points to 1.255 percent, a two-week high, while the 30-year yield was unchanged at 2.180 percent. The two-year yield and the five-year yield were up 0.5 basis points to 0.210 percent and 0.490 percent respectively. Market participants expected trade to stay rangebound in the near term, with the 10-year yield likely to stay at 1.2 percent to 1.25 percent.
The size of the Japanese government's emergency budgets and possible bond issuance for disaster relief and developments at the quake-stricken nuclear plant in northeast Japan remained a market focus. Japan's deputy finance minister Mitsuru Sakurai signalled on Thursday that the government may need to spend over 10 trillion yen ($120 billion) in emergency budgets for disaster relief and reconstruction.