JGB 10-year sale draws decent demand

TOKYO: An auction of 10-year Japanese government bonds on Thursday attracted bids 2.97 times the amount accepted, indicating decent appetite for the paper.

Japan's Ministry of Finance offered 2.2 trillion yen ($28 billion) of 10-year JGBs with a coupon of 1.1 percent, unchanged from the previous 10-year auction in August.

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Bids totalled 2.97 times the amount of offers accepted, down from 3.07 at the previous auction and the lowest since the June offering. The ratio was also lower than 3.05, the average from the past 12 sales.

The tail was 0.01, tightening from 0.02 at the previous offering. The tail is the difference between the average and the lowest price at an auction. A tighter tail suggests there is more consensus about where the new bonds should be priced and is regarded as a sign of strong demand.

Lead 10-year JGB futures were down 0.26 point at 142.14 after the auction result announcement. They closed the morning session at 142.16.

"The auction result was decent with the lowest accepted price above market expectations and the tail tightening.

"Brokers were likely supportive as the coupon was unchanged from previous tender. We can expect demand on dips because there will not be a drastic change in policies under the country's new cabinet."

"The auction result was decent with a higher than expected lowest accepted price and a tighter tail.

"Though a decent 10-year auction this time is unlikely to trigger a rise in the JGB market because people are looking to factors such as events overseas, which can influence prices.

"I don't expect the 10-year yield to break its recent range of 1.0-1.1 percent in the next few weeks."

The 10-year yield hit a nine-month low of 0.970 percent earlier this month, supported by safe-haven demand from investors amid increasing concerns over a slowdown in the global economy.

But the 10-year yield reversed its course last week and climbed to its highest in two weeks on political uncertainty ahead of a ruling party vote to decide Japan's prime minister.

Yoshihiko Noda, a fiscal hawk who wants to curb Japan's huge public debt, won the vote, becoming Japan's sixth prime minister in five years.

Market players said the new 10-year looked more expensive on the yield curve, but that the tender was likely supported by demand from investors, helped by concerns over the global economic outlook and expectations for further monetary easing by the Bank of Japan as the yen stays strong.

Copyright Reuters, 2011