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JGBs end higher, cautious ahead of 20-yr auction

TOKYO: Key March 10-year Japanese government bond futures ended a touch firmer in Tokyo on Wednesday, but the market was cautious ahead of the year's first 20-year JGB auction.

The March contract gained steam in the afternoon session, rising steadily led by unwinding of short positions and a rolling forward of short positions into the June contract for hedging purposes.

Weakness in the Tokyo stock market on Wednesday also gave a boost to JGBs, traders said.

March closed at 132.80, up from 132.78 on Tuesday.

Key 219th 10-year JGB yielded 1.750 percent against 1.745 percent late on Tuesday. "Upward pressure was quite strong in March futures. It looks like foreign players such as US funds were also present in short-basis deals, buying March futures and selling cash bonds," said a dealer at a major city bank.

March rose for the fifth consecutive trading day on Wednesday, but traders said momentum waned as the contract neared 133 yen.

Some noted that Nikkei average breaking below 19,000 yen also supported the bond market. The Nikkei closed down 298.82 or 1.56 percent at 18,897.75.

Looking ahead, the market awaited an auction of 600 billion yen worth of 20-year JGBs on Thursday.

Traders said they expected a benign auction overall, although caution was necessary over fluctuations in JGB futures following its recent rally.

They said the yield curve was seen flattening further due to a plentiful supply of medium-term bonds set to hit the market later this year.

"A coupon rate of 2.4 percent should entice investors such as life insurers and pension funds", said a trust bank dealer.

Separately, an auction of 2.7 trillion yen of three-month financing bills (FBs) on Wednesday produced at lowest accepted price of 99.973, with 41.3194 percent of the bids accepted at that price.

At a news conference on Wednesday, Bank of Japan (BOJ) Governor Masaru Hayami said the central bank's zero interest-rate policy is abnormal and that its side effects are increasing.

But he also reiterated the BOJ will maintain its policy until deflation fears are dispelled.

The BOJ left a money market fund surplus of 1.0 trillion yen operation, unchanged from Tuesday's levels.

Key September TIBOR-based three-month euroyen futures stood at 99.615, up slightly from Tuesday's settlement of 99.605. "Upward pressure was quite strong in March futures. It looks like foreign players such as US funds were also present in short-basis deals, buying March futures and selling cash bonds," said a dealer at a major city bank.

March rose for the fifth consecutive trading day on Wednesday, but traders said momentum waned as the contract neared 133 yen.

Some noted that Nikkei average breaking below 19,000 yen also supported the bond market. The Nikkei closed down 298.82 or 1.56 percent at 18,897.75.

Looking ahead, the market awaited an auction of 600 billion yen worth of 20-year JGBs on Thursday.

Traders said they expected a benign auction overall, although caution was necessary over fluctuations in JGB futures following its recent rally.

They said the yield curve was seen flattening further due to a plentiful supply of medium-term bonds set to hit the market later this year.

"A coupon rate of 2.4 percent should entice investors such as life insurers and pension funds", said a trust bank dealer.

Separately, an auction of 2.7 trillion yen of three-month financing bills (FBs) on Wednesday produced at lowest accepted price of 99.973, with 41.3194 percent of the bids accepted at that price.

At a news conference on Wednesday, Bank of Japan (BOJ) Governor Masaru Hayami said the central bank's zero interest-rate policy is abnormal and that its side effects are increasing.

But he also reiterated the BOJ will maintain its policy until deflation fears are dispelled.

The BOJ left a money market fund surplus of 1.0 trillion yen operation, unchanged from Tuesday's levels.

Key September TIBOR-based three-month euroyen futures stood at 99.615, up slightly from Tuesday's settlement of 99.605.-Reuters