TOKYO: Longer-dated Japanese government bonds slumped on Thursday ahead of a 30-year sale that was expected to meet firm demand in light of that sector's recent underperformance.
The Ministry of Finance is offering 700 billion yen ($8.9 billion) of 30-year bonds with a coupon of 1.90 percent, matching that of the previous sale, which had drawn decent demand.
"We are not expecting an eventful auction," said a fixed-income fund manager at a Japanese asset management firm.
"It would be very surprising if there was little demand at these levels, after superlongs have underperformed in recent weeks," he said.
The yield curve has steepened this week ahead of the auction as investors sold to make room in their portfolios to buy at the auction.
The spread between the 10-year and 30-year yields rose to 1.17 percentage points on Thursday, its widest since March 2008.
Yields on 30-year debt rose 1.5 basis points in cash trading to 1.940 percent, while those on 20-year bonds rose half a basis point to 1.660 percent.
The benchmark 10-year yield was flat at 0.765 percent.
Ten-year JGB futures ended morning trade up 0.03 point at 144.21, after trading in a narrow range between 144.19 and 144.24.
If futures' five-day moving average were to cross below the 200-day moving average, that might be a bearish technical signal. The five-day average is now at 144.16 and the 200-day average is at 144.12.
"We continue to recommend buying 30-year asset swaps, which remain attractively cheap and appear likely to outperform in the event of JGB market selloffs," Morgan Stanley MUFG strategists said in a note to clients ahead of the 30-year sale.
They added that 30-year asset swaps offer around 1 basis point of carry over a half-year period, which would make them suitable for bearish positioning in the longer term.
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