JGBs firm on tight supply

TOKYO: Japanese government bonds were firm on Thursday, supported by uncertainty over Greece's debt woes and signs of slowdown in the global economy, pushing down yields to near multi-month lows.

A two-year debt sale drew lukewarm demand, though appetite was supported by tight supply along with the prospect of loose monetary policy in Japan and the United States.

The benchmark 10-year yield declined 1.5 basis points to 1.105 percent, matching a six-month low marked in mid-May. The yield on five-year bonds was down 1 basis point at 0.395 percent.

"The supply/demand balance is tight as investors need to add more JGBs to their portfolio because this month is the quarter-end and as there will be no more bond sales for the rest of June," said Hidenori Suezawa, chief strategist at SMBC Nikko Securities.

September 10-year JGB futures were up 0.12 point at 141.25, hovering near a six-month peak of 141.33 marked last week.

Traders said a 2.6 trillion yen ($32.3 billion) two-year bond offering drew tepid demand, though it was seen being well received in the secondary market, along with a strong three-month treasury bill auction the previous day, supported by expectations that the Bank of Japan will maintain its loose monetary policy and on worsening prospects for the global economy.

According to IFR Markets, new treasury bills auctioned the day before drew demand from foreign investors.

The yields on the two years bond dipped 0.5 basis points to 0.150 percent having marked a fresh seven-month trough of 0.145 percent on Thursday.

Overseas investors turned net buyers of Japanese bonds last week for the first time in three weeks, Ministry of Finance capital flow data showed.

They bought a net 95.7 billion yen ($1.1 billion) of bonds, after net sales of 320.1 billion yen the week before, suggesting that the recent trend for foreign buying, led partly by China, remained.

Political stalemate over Prime Minister Naoto Kan's departure risks slowing efforts to prompt recovery from a massive earthquake and is delaying vital policies, including a law to sell bonds to cover a budget deficit, changes to the social security system and tax increases needed to curb huge public debt, though players said it was unlikely to be an immediate factor in moving JGB yields as the situation remains highly uncertain.

Copyright Reuters, 2011