JGB 5-year sale draws solid demand

TOKYO: An auction of five-year Japanese government bonds on Tuesday attracted bids 2.72 times the amount accepted, indicating solid demand.

The Ministry of Finance offered 2.4 trillion yen ($31 billion) of five-year JGBs with a coupon of 0.4 percent, reopening the No. 99 issue auctioned in September.

KEY POINTS:

-- Bids totalled 2.72 times the amount of offers accepted, up from 2.68 at the previous auction and the highest since the August offering. That compared with 3.40, the average ratio from the past 12 sales.

-- The tail was 0.00 and tightened from 0.01 at the previous auction last month. The tail is the difference between the average and the lowest price at a sale. 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 0.06 point at 142.11 after the auction results announcement, after closing the morning session at 142.20.

For previous MoF auction results, click on

COMMENTARY:

KATSUTOSHI INADOME, FIXED-INCOME STRATEGIST, MITSUBISHI UFJ MORGAN STANLEY.

"I think the auction result was solid with the lowest accepted price better than initially expected and the tail tightening to zero.

"The bond was supported by demand as the yield approaches 0.4 percent and becomes attractive in terms of absolute value."

BACKGROUND:

-- The five-year yield climbed to a 2-1/2 month high of 0.380 percent on Monday, tracking a rise in global government debt yields amid rising optimism that euro zone policymakers may finally come up with a comprehensive plan to resolve the region's debt woes and recapitalise its banks.

-- The five-year sector looks attractive on the yield curve, analysts said, and with the Bank of Japan expected to maintain its easy monetary policy for some time, the new bonds are likely to be underpinned by demand from Japanese banks, the main players in the maturity.

-- Market participants expect the two- and five-year sectors to bear the brunt of debt-sale increases to help finance rebuilding from the March disaster. But worries about such supply increases are easing as the government also looks at raising taxes and selling assets to help pay for reconstruction, which could limit the amount of additional debt.