TOKYO: Japanese government bonds mostly slumped on Tuesday, as the first auction following Moody's cut to Japan's sovereign rating met with tepid demand from investors.
The yield on the 5-year Japanese government bond edged down to a record low, as the Bank of Japan's massive bond buying programme keeps pressure on the shorter end of the yield curve.
"The auction today was not so good, showing people are cautious, but that's not just because of the downgrade but because we have US jobs data this Friday," said Tadashi Matsukawa, head of fixed-income investments in PineBridge Investments in Tokyo.
The Ministry of Finance conducted its monthly 2.4 trillion yen ($20.27 billion) auction of 10-year JGBs with a coupon of 0.5 percent. The lowest accepted price at the auction was 100.15 to yield percent, with 88.9323 percent of bids accepted.
The bid-to-cover ratio, a measure of demand, was 3.01 times, down from the last sale's 3.50 times. The tail stemming from the gap between the average and accepted lowest prices widened to 0.10 from 0.02 at last month's sale.
Fixed-income assets were initially underpinned by weaker equities after Monday's downgrade, but the Nikkei stock average erased morning losses and was up 0.5 percent in afternoon trade.
Moody's Investors Service on Monday downgraded Japan's sovereign debt rating by one notch to A1, citing rising uncertainty over the country's ability to hit its debt-reduction goal.
The yield on the current 10-year JGB added 1.5 basis points to 0.435 percent, rising as high as 0.445 percent earlier.
The yield on 5-year JGBs edged down half a basis point to its lowest-ever 0.090 percent.
Two-year Japanese government bonds were flat on the day at 0.005 percent after they traded at a negative yield for the first time in history last Friday. Yields on shorter government bills turned negative in September.
"The strength of the two-year sector seems to be supporting the five-year sector as well. And yesterday, the BOJ bought at a negative yield in their operations for the first time for other than TBs (treasury bills), so that probably made investors want to buy," Matsukawa said. "If they can sell to the BOJ at minus yields, they don't have to care about the level so much," he added.
In the superlong zone, the 20-year added half a basis point to 1.175 percent, down from a session high of 1.195 percent, while the 30-year JGB yield was flat at 1.370 percent, down from 1.390 percent earlier.
Lead 10-year December JGB futures were down 0.01 point at 146.89, up from a session low of 146.65, but moving away from a record high of 146.96 touched on Monday.
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