20000204

JGBs dip due to buoyant Nikkei but losses limited

TOKYO: Japanese government bonds slipped in late trade on Thursday as Tokyo share prices continued to climb, but JGBs recouped most earlier losses after bargain-hunting by Japanese investors emerged.

"We can't ignore movements in stock prices but there is a sense that downside risks have receded a bit after investor-led buying was detected," a trader at a trust bank said.

There was little market impact from the 30-year JGB auction held on Thursday, which showed moderate demand mainly from overseas investors, traderse said.

The key March JGB futures contract: closed down 0.05 at 132.17.

The yield on the key 220th cash bond was at 1.850 percent, after hitting 1.870 percent earlier. It closed at 1.835 percent on Wednesday. "Bonds will likely settle down after on Wednesday's sharp falls. The key will be movements in stock and currency prices," a fund manager at a major city bank said.

The benchmark Nikkei stock average closed up 1.06 percent or 207.51 points at 19,786.42.

"It will be hard to justify holding long JGB positions if the Nikkei rises to 20,000," the trust bank trader said.

Japanese investors, including government-affiliated financial institutions, were sighted buying the 219th 10-year government bond when its yield rose above 1.8 percent. Sporadic bids were also detected for the 220th bonds.

The March JGB futures contract rose as high as 132.53 in early trade after Japanese Finance Minister Kiichi Miyazawa said late on Wednesday that he was not considering halting outright purchases of JGBs by the ministry's Trust Fund Bureau.

Rumours that the Bureau was considering halting such buying partly triggered heavy selling on Wednesday.

But the rally was short-lived in the face of strong gains in the stock market.

The March contract was also hurt after former Bank of Japan (BOJ) Executive Director Akira Nambara said on Thursday it is abnormal that the yield on the benchmark 10-year Japanese government bond is below 2.0 percent.

But the market took comfort in the words of BOJ Governor Masaru Hayami, who reiterated the central bank's commitment to its zero interest rate policy until deflationary fears abate.

After the market's close, Miyazawa repeated that a rise in long-term interest rates cannot be avoided when the economy recovers. Miyazawa rocked the market on Tuesday by saying that the then-prevailing 1.7 percent yield on the benchmark bond was "not normal."

"I don't think his remarks will prompt bond yields to target 2.0 percent in the near term. The deteriorating fiscal situation has been debated to death, and it's not like there are suddenly no buyers," another bond trader at a city bank said.

But he added: "Of course, yields of around 1.6 percent for the benchmark bond are probably unrealistic now."

Traders will also watch whether the March contract can make a decisive break above the key technical point of 132.20.

An auction of 300 billion yen of 30-year JGBs produced a highest accepted yield of 2.475 percent. Bid-to-cover ratio was 1.83 times.

In the shorter end of the market, key September TIBOR-based three-month euroyen futures was at 99.660, up from Wednesday's day-session settlement of 99.640.

The key unsecured overnight call rate was mainly trading at 0.02 percent, unchanged from Wednesday's weighted average, after the Bank of Japan left a projected net surplus of 1.0 trillion yen in the money market regular operation.-Reuters