JGBs flat, underpinned by solid demand at 2-year sale

31 May, 2016

TOKYO: Benchmark Japanese government bonds were flat on Tuesday, but the market was supported by month-end demand for superlong maturities as well as the solid outcome of a 2-year JGB auction.

The benchmark 10-year yield was unchanged from the previous session at minus 0.120 percent, while June 10-year futures ended flat at 152.03.

The Ministry of Finance offered 2.3 trillion yen ($20.69 billion) of 2-year JGBs with a 0.1 percent coupon.

The notes sold at a lowest price of 100.675, and drew bids of 5.52 times the amount offered, up from the previous sale's bid-to-cover ratio of 4.20 times.

The tail between the average and lowest accepted prices shrank to 0.003 from 0.011 at last month's offering, indicating higher demand for the bonds.

The 2-year JGB yield fell 1 basis point to minus 0.245 percent.

The superlong zone firmed, with the 30-year JGB yield falling 2.5 basis points to 0.290 percent.

Superlong JGBs have attracted demand recently from index-tracking investors seeking to extend the duration of their bond portfolios at the month-end.

The JGB market largely shrugged off data released early in the session that showed Japan's factory output unexpectedly rose in April as a series of earthquakes in the southern part of the country appeared to have had minimal impact on production.

Separate data showed that household spending also fell less than expected last month and job availability hit a 24-year high.

Prime Minister Shinzo Abe is expected to delay a scheduled sales tax hike next year to avoid derailing Japan's economic recovery.

Copyright Reuters, 2016

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