JGBs rally after officials hint at pension fund shift, strong auction

TOKYO: Japanese government bonds (JGBs) rallied on Tuesday after officials flagged possible changes to asset allocations of pension funds and as demand increased at a long-term debt sale.

Here are a few details:

The benchmark 10-year JGB yield slid 4.5 basis points (bps) to 2.740%. Yields move inversely to bond prices.

Finance Minister Satsuki Katayama said the government may consider adjusting asset allocation in Japan’s massive pension funds if the investment environment changes sharply.

Health Minister Kenichiro Ueno told a separate press conference that the ministry will examine reviewing the Government Pension Investment Fund’s (GPIF) asset allocation if needed, but downplayed the prospect of any near-term changes.

The Ministry of Finance sold about 700 billion yen ($4.31 billion) in 20-year bonds.

The bid-to-cover ratio, a measure of demand, rose to 4.52, the highest since the sale in April. The tail, another measure of demand, was 0, the lowest since an auction in 2010.

“The outcome was strong, better than forecast,” said Takuya Onozawa, a fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

“The level of the yields is relatively high, which is why there was strong demand.”

JGBs rallied sharply on Friday after Katayama suggested that the GPIF and other retirement vehicles could be encouraged to direct more investments into domestic assets.

The 20-year yield eased 4.5 bps to 3.7%, extending its declining streak to three sessions.

The 30-year yield dropped 4.5 bps to 3.860%.

The two-year yield, the most sensitive to Bank of Japan policy rates, decreased 1 bp to 1.435%, while the five-year yield fell 3.5 bps to 1.960%. ‑Reuters