20000224

JGBs rise, trade cautious ahead of 5-yr auction

TOKYO: Japanese government bonds (JGBs) ended moderately higher on Wednesday, after being stuck in a narrow range throughout a quiet afternoon session.

March 10-year JGBs futures: were lifted by investors lured to the market after a weak 10-year bond auction result the previous day sent prices lower.

Dealers said cash-rich investors, lacking attractive investment alternatives elsewhere, were eager to buy 10-year JGBs when yields approached 1.9 percent.

Such bargain hunting by investors, and short-covering by dealers, lifted the March futures contract to a high of 132.49, up from on Tuesday's close of 132.24. The March contract ended trade at 132.34, up 0.10 point from Tuesday.

Dealers said the limited rise was partly due to market caution ahead of Thursday's five-year JGB auction. Views were mixed regarding demand for the new five-year bonds, they said.

The newly auctioned 219th March 10-year bond was yielding 1.835 percent at the close, down 0.020 from on Tuesday.

Traders said bonds were lightly traded. Turnover in March futures was also light at 16,976 lots."In the afternoon, (the market) grew cautious about the outlook for demand at the five-year bond auction, and hesitated to take part in trading," said a trader at a major Japanese city bank. The Finance Ministry will offer 800 billion yen worth of five-year JGBs via auction on Thursday.

The market expects a coupon rate of either 1.0 or 1.1 percent, but some traders said buying interest at the auction could be weak if the coupon is set at 1.0 percent, unchanged from the previous issue. Kazuto Uchida, manager of the Bank of Tokyo-Mitsubishi's Treasury & Investment Division, said he expects sound demand at the auction, "as this is only the second five-year bond auction, but I also don't expect it to be too exciting.

"Traders said there was solid demand for the public offering on Wednesday of government-guaranteed and municipal bonds, which carried coupon rates of 1.9 percent compared with 1.7 percent for the previous month. In the short end of the market, September TIBOR-based three-month euroyen futures ended at 99.735, up 0.005 from Tuesday's day-session settlement. Key unsecured overnight call money was mainly traded at 0.02 percent, after the BOJ left the market with its usual projected net surplus of 1.0 trillion yen operation, unchanged from Tuesday's surplus.

The Japan premium, or the extra cost Japanese banks pay when raising funds in overseas interbank markets, narrowed slightly on Wednesday as debt-burdened trading house Tomen Corp said it was asking Toyota Tsusho, an affiliate of Toyota Motor Corp, to take a stake in it and become its top shareholder. Major Japanese banks were paying 6.87500 percent for one-year eurodollars on Wednesday, compared with the 6.84375 percent major Western banks were paying, putting the Japan premium at three basis points. The premium was around five basis points on Tuesday.

The Japan premium re-emerged late last week in response to renewed worries over the quality of bank assets, sparked by the recent high-profile failures of housing developer L Kakuei Corp and supermarket operator Nagasakiya Co Ltd, both listed on the first section of the Tokyo Stock Exchange, money traders said. The premium for major Japanese banks had vanished late last year as markets recovered confidence in the restructuring efforts in Japan's banking sector.-Reuters