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Long-dated JGBs firm on fiscal discipline hopes

TOKYO : Long-dated Japanese government bonds rose on Tuesday despite a drop in US Treasuries and climbing stocks, underp

Published August 30, 2011 Updated August 30, 2011 05:04am

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By Shoaib Ur Rehman

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The JGB market welcomed the selection on Monday of Finance Minister Yoshihiko Noda as Japan's next premier as he has a reputation as a fiscal hawk who is likely to favour tax increases to contain the country's bulging debt.

"It doesn't look like JGB futures are set to rise above recent highs yet but they likely confirmed their bottom yesterday," said a trader at a European brokerage, adding that long-dated cash JGBs are being well supported by Noda's victory.

September 10-year JGB futures were flat at 142.56 well above their 20-day moving average at 142.37 on Tuesday. Futures broke below the moving average on Monday, but had recovered by the close. They hit a nine-month high of 142.90 earlier in August.

The 10-year JGB yield was down 0.5 basis point at 1.010 percent , off a two-week high of 1.050 percent marked on Monday.

The yield curve bull-flattened as the decline in yields of superlongs outpaced other maturities. The 20-year yield fell 1.5 basis points to 1.825 percent and the 30-year yield dropped 1 basis point to 1.975 percent .

Japan's Ministry of Finance set a 0.1 percent coupon on 2.6 trillion yen ($34 billion) of two-year JGBs it is offering on Tuesday, down from 0.2 percent at the previous sale in July and the lowest since October. The MOF will release the auction results at 12:45 p.m. (0345 GMT).

Analysts expect a modest drop in the two-year yield as it is already very low and has limited room to fall from current levels, but the new bonds are expected to be digested smoothly, helped by demand from cash-rich investors such as big Japanese banks.

Treasury prices fell on Monday as investors turned to stocks and a surprisingly big pickup in consumer spending soothed fears that the United States could fall back into recession.

A merger between two big Greek banks generated optimism that Europe is working through its debt problems, helping to pare safe-haven demand for U.S government debt, traders and investors said.

The Nikkei stock average rose 1.5 percent on Tuesday, poised for a fourth straight day of gains.

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