JGBs edge down but support seen solid

TOKYO: Japanese government bond prices dipped on Friday following a move by major central banks to offer dollar liquidity to financial institutions and as Japanese investors took profits ahead of their book-closings later this month.

Still, with the dollar injections proposed by central banks seen as insufficient to pull the euro zone out of its predicament on their own, many investors expect the market to be underpinned by lingering worries of a global slowdown.

Market players said trading was getting light ahead of Sept 30, when many Japanese investors close their books for the half-year.

The 10-year cash JGB yield rose 1.5 basis point to 1.005 percent and was up 0.5 basis point on the week, after spending the week in a narrow 2 basis point range, the narrowest weekly range in data going back to 2004 apart from a week truncated by New year holidays.

The 20-year JGB yield also climbed 1 basis point to 1.745 percent .

Traders said there appeared to be profit-taking in the 10- and 20-year sectors, the best performers in the current quarter from July.

The 10-year yield has fallen 12.5 basis points while the 20-year has dropped 14 basis points, compared with declines of 8.5 basis points in the 30-year yield and 7.5 points in the five-year yield.

Benchmark JGB futures dropped 0.18 point to 142.52 but stayed above key support at 142.50 from the kijun line on their daily Ichimoku chart.

But many market players said demand for bonds remained solid as investors are worried about the euro zone's debt problems and US recession.

Although the central banks' dollar injections are likely to keep banks going, investors are not sure how Greece's public finances can get back on track.

"It's not like everything is solved after the central banks' move... Japanese life insurers are continuing to buy long-dated bonds," said a fund manager at a US asset management firm.

STRONG DEMAND

Traders said demand for superlongs -- such as 20- and 30-year bonds -- has been strong since Prime Minister Yoshihiko Noda, an advocate of fiscal discipline, was elected as Prime Minister last month.

That helped the yield spread between 10- and 20- year yields shrink to a six-week low of 74 basis points from around 82 basis points in late August.

Finance Minister Jun Azumi said on Friday that the government is considering raising income and corporate taxes and selling stakes in Japan Tobacco and Tokyo Metro to finance reconstruction from a devastating March earthquake and tsunami.

But the government is expected to initially rely on borrowing to finance rebuilding and the market is expecting an additional bond sale of around 10 trillion yen to finance reconstruction.

Copyright Reuters, 2011