JGBs mostly edge higher

Japanese government bond prices edged mostly higher on Friday, particularly at the shorter end, helped by firm US Treasuries after a strong seven-year US debt auction. JGBs were undaunted by the Nikkei share average's rally to its highest close in seven months, still buoyed by the Bank of Japan's surprise move last week to spend an extra 10 trillion yen ($125 billion) on JGBs as part of its asset-buying programme.
The central bank buys bonds with up to two years left to maturity, so the move primarily lifted prices at the short end of the curve. The five-year sector also outperformed on Friday as JGBs took their lead from Treasuries, which firmed after a seven-year auction drew the highest demand from investors and direct bidders since the maturity was reintroduced three years ago. The strong demand forced those who were unable to buy Treasuries at the auction to cover positions by buying in the open market.
But some analysts saw limited room for short-term JGBs to rise further. "The 2- to 5-year sector has basically run out of value because of the BOJ. You're much better off with T-bills and a smaller amount of longer maturities," said Neale Vincent, strategist at Nomura Securities Co.
The yield on the latest 10-year JGBs slipped half a basis point to 0.970 percent, inching closer to a double bottom of 0.940 percent hit earlier this month. The yield on 5-year JGBs was down a basis point at 0.300 percent after falling as low as 0.295 percent, a six-month low revisited several times since the BOJ's easing this month. Ten-year JGB futures edged up 0.06 point to 142.54, slipping from an intraday high of 142.65 to end below their 10-day moving average at 142.60. But they held solidly above their 25-day moving average at 142.52.
Because the moving averages are based on closing prices, some technical analysts are looking to them for clues to market direction rather than other chart signals that may be distorted by sharp intraday moves that followed the BOJ easing. Futures spiked to 143.37 immediately after the BOJ's announcement on February 14, their highest since November 2010, although many market players suspect that spike was caused by an unintended trade. Longer durations lagged on Friday, with the yield on the 20-year note flat at 1.755 percent while the 30-year bond yield rose half a point to 1.935 percent.