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JGBs end firmer on Nikkei slip, eye JGB auction

TOKYO: Japanese government bond (JGB) futures closed firmer on Monday, supported by a dip in Tokyo share prices after trading in a narrow range as most investors hugged the sidelines before book closing at the end of March.

The highlight of this week is likely to be a six-year bond auction on Thursday at which players will focus on how much demand the issue can draw given that the volume will be half of that in the previous six-year JGB auction.

Dealers said seasonal factors, plus the lack of fresh fundamental incentives, were expected to keep market activity subdued for the next two weeks.

The key June 10-year JGB futures: ended at 131.37, up 0.28 point from on Friday's Tokyo close of 131.09.

The benchmark 219th 10-year JGB yielded 1.775 percent against 1.790 percent late on Friday."Dealers who sold JGB futures due to the strength in the stock market this morning engaged in short-covering after they saw the Nikkei lingering below the 20,000 mark later in the day," said a dealer at a Japaense city bank.

The benchmark Nikkei 225 index slipped under the key 20,000 mark as strength on Wall Street failed to translate into broad-based buying and ended down 0.66 percent at 19,796.35.

Regarding Thursday's auction of 500 billion yen in six-year bonds, many traders said the smaller amount meant the impact on the market would be small and demand might be relatively good.

"The auction itself is expected to see healthy demand because the yield curve has been flattening during the past week, making the medium-term zone less expensive," said Chotaro Morita, strategist at Nikko Salomon Smith Barney.

Dealers said Monday's rally in June JGB futures during the last half-hour of trade showed the range between 130.50 and 131.00 was a good support, and players were expected to buy on dips at these levels in the next few days.

However, fesh incentives were necessary to drive the market to higher levels, they said.

For now, that fresh incentive is expected to be Japan's gross domestic product (GDP) data for October-December to be released next Monday.

"No one seems to be willing to buy or sell aggressively ahead of release of the GDP data," said one dealer at a European brokerage.

"The market has already priced in a negative figure, and I don't expect surprises since government officials have been trying to soothe the markets by giving them an idea of what the number will be," said a trust bank dealer.

Economic Planning Minister Taichi Sakaiya said on Monday that GDP was likely to mark its second consecutive contraction in October-December before rising in January-March.

GDP declined by 1.0 percent in the third quarter last year.

"A GDP contraction of around one percent is already priced in. A bigger-than-expected contraction is not necessarily bullish for the JGB market as it could fuel speculation of another extra budget," said a dealer at a Japanese commercial bank.

The Bank of Japan (BOJ) on Monday reduced the projected daily net surplus in the money market to 3.3 trillion yen operation, from 5.3 trillion yen last on Friday.

The BOJ has been steadily reducing the size of the daily surplus after expanding it sharply in late February to curb upward pressure on money market rates that stemmed from leap-year concerns.-Reuters