JGB futures post biggest fall under BOJ's yield curve control

• Japanese government bond (JGB) prices slumped across the board on Tuesday after a 10-year debt auction received weak investor demand, with the key 10-year futures contract posting the biggest daily fall in three years.
• Benchmark 10-year JGB futures fell 0.88 point to 154.14, the largest decline since the Bank of Japan introduced the current policy framework of yield curve control in Sept. 2016.
• The 10-year cash JGB yield jumped 6.5 basis points to minus 0.160%, hitting its highest level in nearly three weeks.

TOKYO: Japanese government bond (JGB) prices slumped across the board on Tuesday after a 10-year debt auction received weak investor demand, with the key 10-year futures contract posting the biggest daily fall in three years.

Investors stayed away from the auction after the Bank of Japan on Monday hinted at the possibility of reducing buying in long-dated bonds this month.

"The BOJ's monthly bond buying plan announced yesterday (Monday) made it clear about its intention to steepen the yield curve," said a trader at a Japanese brokerage. "No one wants to have long positions for the next few days before the BOJ's next bond buying on Friday."

Benchmark 10-year JGB futures fell 0.88 point to 154.14, the largest decline since the Bank of Japan introduced the current policy framework of yield curve control in Sept. 2016.

The 10-year bond auction's tail, or the gap between the lowest and accepted prices, was 0.29, much wider than usual levels of 0.01-0.03, and the highest level since March 2015.

The bid-to-cover ratio, another gauge of demand, at the 2.1 trillion yen ($19.4 billion) 10-year JGB auction, fell to 3.42 from 3.60 at the previous auction in September.

The results fell far short of market expectations, as analysts had been initially expecting some buying at the start of new quarter to come in.

The 10-year cash JGB yield jumped 6.5 basis points to minus 0.160%, hitting its highest level in nearly three weeks.

In the super-long zone, the 20-year and the 30-year yields climbed 5.5 basis points each to 0.250% and 0.410%, respectively. The 20-year yield hit three-month highs, while the 30-year yield was at the highest level since early-June.

The 40-year yield, meanwhile, added 6 basis points to a four-month high of 0.485%.

At the shorter end of the curve, the two-year yield  rose 3 basis points to minus 0.295% and the five-year yield jumped 7.5 basis points to minus 0.285%.

On Monday, the BOJ announced it will cut its target purchase amount for four maturity categories - three to five, five to ten, ten to 25 and 25 to 40-year JGBs - in October, while it raised the target amount for one to three-year debt.