JGBs tick down on profit-taking ahead of 30-year auction

TOKYO: Japanese government bond prices slipped on Tuesday on profit-taking after the 10-year yield hit a 14-month low the day before and as investors braced for a 700 billion yen auction of 30-year debt later in the day.

The 10-year cash JGB yield rose 1.5 basis points to 0.950 percent, up from a 14-month low of 0.935 percent marked on Monday.

"This seems like profit-taking. Investors are unwinding yesterday's safe-haven buying following the S&P downgrades of euro zone countries," said Naomi Hasegawa, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Investors are not bullish enough to keep chasing the upside. They will use every opportunity to take profits when 10-year yields are below 0.95 percent," Hasegawa said.

Buyers were also cautious ahead of the Finance Ministry's sale of 30-year JGBs on Tuesday, with the maturity's yield rising 1.5 basis points to 1.915 percent.

While the 30-year sector does not look particularly attractive at current levels, the offering is likely to draw decent demand as the recent fall in 10-year bonds is expected to push investors to buy longer bonds to maintain income gains, market players said.

Ten-year JGB futures dropped 0.09 point in price to 142.70, with support seen at the daily Ichimoku chart's tenkan line at 142.56.

The five-year yield rose just 0.5 basis points to 0.335 percent, widening the 5-10 year yield spread to 61.5 basis points from a 15-month low of 61 points hit on Monday.

Many market players expect further tightening in the spread, saying that investors flush with cash will keep a big portion of funds in JGBs until worries about the euro zone debt crisis will ease considerably -- something that is unlikely to happen in the near future.

Copyright Reuters, 2012