TOKYO: Japanese government bond prices fell on Wednesday, with the superlong security prices under particular pressure a day ahead of a 20-year bond auction as investors made room to buy.
Some strategists have said that buying ahead of a quarterly redemption of JGBs on June 20 will support demand at the auction of 1.2 trillion yen ($15 billion) 20-year JGBs.
"Some investors are unloading the 30-year, which appears to be an adjustment to their portfolios to buy the 20-year tomorrow, which explains the steepening today," said a fixed-income fund manager at a Japanese asset management firm.
"I'm optimistic about the auction, because the outright level is fair and demand from insurers and regional banks should be there," he added.
Continuing worries about the euro zone debt crisis are also likely to underpin demand for fixed-income assets ahead of Greek elections on June 17, that could determine whether the country remains in the euro zone.
Still, sharp fall in German Bunds on Tuesday is raising alarm among some market players given that a failed German bond auction last November triggered JGBs' biggest sell-off in recent months.
The 10-year JGB yield added one basis point to 0.855 percent, while the 10-year JGB futures contract for September ended down 0.10 point at 143.55.
The 20-year yield rose 2.5 basis points to 1.690 percent, while the 30-year yield added 3.5 basis points to 1.875 percent, its highest level since April 27.
The five-year yield rose 1.0 basis point to 0.230 percent.
The spread between 10- and 20-year yields rose to 83.5 basis points, the widest since March last year and at a level that market players think should be enough to attract investors to Thursday's 20-year debt auction.
"Everyone at the moment wants to put on long-end flatteners, based on the idea that 10s/20s are very steep," said Neale Vincent, a strategist at Nomura Securities.
JGBs are also likely to benefit from safe-haven bids amid uncertainty over Greece's election at weekend and on how the euro zone will shore up Spain's ailing banking sector.
Market players are also trying to figure out the implication from fall in German bond prices as well as a rise in the German sovereign CDS premium, which rose above Japan's this month for the first time in history.
With a possible need to help Italy now being discussed, and should German bonds falter further on worries about snowballing costs of bailouts, JGBs could fall in sympathy as they did in November.
But if investors are to shun even German paper, then they will have no choice but to buy US and Japanese bonds, so ultimately that could be positive, a Japanese bank trader also said.
The Bank of Japan will hold its regular monthly meeting on Thursday and Friday this week, and is widely expected to stand pat on monetary policy.
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