TOKYO: Japanese government bond prices rose on Monday with the benchmark yield inching down to a fresh three-month low, taking their cues from stronger US Treasuries prices in thin summer conditions.
The JGB market largely shrugged off data released earlier that showed Japan's gross domestic product expanded by an annualised 2.6 percent in the second quarter, slowing from a downwardly revised 3.8 percent rate in the first quarter and falling short of a median estimate for growth of 3.6 percent.
While weak data generally boosts the appeal of fixed-income assets, the latest GDP report also raises concern that Japan might delay implementing a planned sales-tax hike, which would weigh on bonds. A prominent adviser to Prime Minister Shinzo Abe warned that growth remains too weak to raise the tax.
Japan is due to raise its 5 percent sales tax rate to 8 percent next April and then to 10 percent in October 2015, as part of efforts to curb its massive public debt. At more than twice the size of its 500 trillion yen economy, Japan's debt is proportionally the largest among major industrialised nations.
The Bank of Japan offered to buy outright in its regular market operations 450 billion yen ($4.68 billion) of JGBs with five to 10 years left to maturity, and another 200 billion yen of JGBs with more than 10 years of residual maturity.
"BoJ buying is providing the usual support today, though moves are small because of the summer holiday season, and investors don't want to test the upside too much at these levels," said a fixed-income fund manager at a Japanese asset management firm in Tokyo.
The yield on the benchmark 10-year bond edged down half a basis point to 0.745 percent, its lowest since May 13, when it was marked down as low as 0.725 percent.
The next key downside yield level ahead of that is 0.700 percent. The benchmark yield dipped below that level on Feb. 26, on its way to its record low of 0.315 percent the day after the BOJ unveiled a massive easing scheme in early April. It remained below 0.700 percent until May 10.
"I think if 10-year yields approached 0.700 percent again, buyers would emerge," the fund manager said.
Ten-year JGB futures ended morning trade up 0.09 point at 144.11, after earlier touching a three-month high of 144.13.
On Tuesday, the Ministry of Finance will auction 2.7 trillion yen of 5-year notes.
The superlong sector also gained, with yield dipping to their lowest levels since mid-June. The yield on the 30-year JGB shed one basis point to 1.780 percent, while the 20-year yield also lost one basis point to 1.665 percent.
On Friday, the 10-year Treasury note gained in thin trading, its yield dipping to 2.58 percent, around where it remained in Asian trade on Monday.
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