TOKYO: Japanese government bonds fell on Thursday, weighed down by investors' position adjustments and brokers' hedging before a JGB auction, and after tracking losses of US Treasuries, pulling down JGB futures from a 10-month high hit earlier this week.
The Ministry of Finance set a 0.4 percent coupon on the 2.4 trillion yen ($31 billion) of five-year JGBs it is offering on Wednesday, up from 0.3 percent at the previous sale in August. Auction results are due out at 12:45 p.m. (0345 GMT).
The five-year sector looked expensive in absolute terms, analysts said, but with the possibility of further monetary easing amid ongoing yen strength, the sale was expected to be supported.
"The auction will be supported by demand from cash rich investors such as Japanese banks, the main players in the maturity, in the expectation that medium-dated yields keep facing downward pressures from speculation about additional monetary easing by the Bank of Japan," a trader at a Japanese brokerage firm said.
Data released by the Bank of Japan on Thursday showed bank lending fell 0.5 percent in August from a year earlier, marking the 21st straight month of decline.
The figures suggested that loan demand has not been picking up even after the March earthquake, and Japanese banks likely remain buyers of bonds as they need to manage their cash.
The 10-year yield was up 2 basis points at 1.020 percent , off a two-week low of 0.985 percent hit on Tuesday, likely held down by profit-taking by investors such as Japanese banks and pension funds, traders said.
The five-year yield was 1.5 basis points higher at 0.340 percent , after marking a two-week low of 0.300 percent earlier this week.
Losses were smaller in superlongs such as 20- and 30-year bonds. The spread between 10- and 20-year yields shrank to 77 basis points, its tightest in a month.
Lead 10-yr JGB futures were down 0.11 point at 142.50, pulling back from a 10-month peak of 143.07 hit on Tuesday.
US Treasury prices fell on Wednesday as investors cashed out of the richest market for Treasuries in decades, with higher stocks and a milder report on the US economy rendering the ultra-safe, low-yielding securities less appealing. The 10-year Treasury yield rose from its lowest in at least 60 years of 1.908 percent, touched on Tuesday.
Copyright Reuters, 2011
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