TOKYO: Benchmark Japanese government bonds were supported on Wednesday, with the 10-year yield revisiting an eight-week low, as weak Chinese data and uncertainty of the timing of Spain's bailout request sapped investor appetite for riskier assets.
But the yield curve continued to steepen as the superlong tenor underperformed, with few bargain hunters willing to step in ahead of 20- and 30-year auctions later this month.
Spain's Prime Minister Mariano Rajoy said on Tuesday a request for European aid was not imminent. He also said Spain's central government had agreed with the country's regional leaders on a framework for fiscal reform.
China's official purchasing managers' index for the services sector fell to 53.7 in September from 56.3 in August, marking its lowest level in almost two years.
"The short end is anchored by the Bank of Japan's monetary policy, and the long end is pressured by supply concerns and uncertainty about Europe and about global growth, leaving the 10-year sector as the only appealing option," said a fixed-income fund manager at a Japanese asset management firm in Tokyo.
"This should help demand at tomorrow's sale," he added.
The Ministry of Finance will offer 2.3 trillion yen ($29.5 billion) of 10-year notes on Thursday in its monthly auction of the maturity.
If the yield on the current issue holds above 0.75 percent ahead of the sale, market participants expect it to be reopened, with its coupon of 0.80 percent.
The 10-year yield was flat at 0.760 percent, after earlier revisiting its Tuesday low of 0.755 percent, which was its lowest level since Aug. 7.
Ten-year JGB futures ended down 0.04 point at their session low of 144.25 after rising to an eight-week high of 144.33.
Yields on 20-year bond rose 1.5 basis points to 1.655 percent and 30-year yields added 1.5 basis points to 1.905 percent.
The spread between the 10-year and 30-year yields rose as high as 1.150 percentage points, its widest since March 2008 and up sharply from levels below 1.0 point as recently as mid-July.
"BoJ buying of the front end has pushed investors all the way up to 10's, and they will get eventually get pushed into 15's and 20's, but the timing of that is somewhat difficult," said Neale Vincent, strategist at Nomura Securities in Tokyo, who recommends other trades in the meantime.
"Superlong asset swaps are attractive, and there's some interest from different investors around current levels. I particularly like 18-year asset swaps," he said.
Later on Wednesday, investors will be watching the US ADP employment report, which is expected to show that employers added 113,000 jobs in September. A downside surprise would give US Treasuries a lift, which would in turn underpin JGBs.
The key monthly US nonfarm payrolls report will come on Friday. Economists predict the unemployment rate will show a rise to 8.2 percent from 8.1 percent in August.
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