TOKYO: Japanese government bonds mostly rose on Tuesday as investors were reassured by the outcome of a 40-year sale - the first major bond auction since the Bank of Japan adopted a new policy focus last week.
The benchmark 10-year JGB yield shed 1.5 basis points (bps) to minus 0.080 percent, its lowest since Sept. 8.
December 10-year futures ended up 0.29 point at 152.15.
The BOJ said last week that it will shift the focus of its monetary policy framework to controlling the yield curve by actively keeping the 10-year yield at around zero percent.
The aim of the move is to push down short- to medium-term borrowing costs while allowing for a natural rise in super-long yields.
While the BOJ also pledged to maintain the pace of its massive bond buying for now, many traders suspect it will have to start scaling back purchases soon or risk creating further distortions in the market.
The Ministry of Finance's quarterly sale of 500 billion yen ($4.95 billion) of 40-year JGBs with a 0.4 percent coupon produced a highest yield of 0.5600 percent, with 15.6657 percent of the bids accepted at the lowest price of 94.34.
The sale drew bids of 2.73 times the amount offered, down from the previous sale's bid-to-cover ratio of 2.89 times.
"I think a lot of brokers bought at the auction, but I didn't see any action after that," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.
"Most action is at the short-end of the curve, where the 2-year is rallying as the market prices in more negative interest rates," he said.
The two-year JGB yield shed 4 bps to minus 0.270 percent , while the five-year yield lost 3.5 basis points to minus 0.235 percent, its lowest since Aug. 1.
The curve steepened as longer maturities edged down. The 30-year yield added 2 basis points to 0.505 percent , while the 40-year JGB yield rose 1.5 basis points to 0.585 percent.
"I didn't participate in the 40-year action. I was watching the debate," Matsukawa added, referring to the U.S. presidential debate between Democrat Hillary Clinton and Republican Donald Trump.
While its market impact was muted, the debate was the focus of the early part of the Asian session.
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