JGB 10 year sale draws solid demand

TOKYO: An auction of 10-year Japanese government bonds on Tuesday attracted bids 3.24 times the amount accepted, indicating solid demand.

The Ministry of Finance reopened the 1.2 percent coupon No. 315 10-year JGBs for the first time for the 2.2 trillion yen ($27.2 billion) offering.

KEY POINTS:

* Bids totalled 3.24 times the amount of offers accepted, up from 2.70 at the previous auction and the highest since the April sale. The ratio is also higher than 3.11, the average from the past 12 offerings.

* The tail was 0.02, tightening from 0.04 at the previous auction last month. The tail is the difference between the average and the lowest price, with a tighter tail suggesting there is more consensus about where the new bonds should be priced and is regarded as a sign of strong demand.

* Lead 10-year JGB futures were down 0.10 point at 140.81 after the auction result announcement. They closed the morning session at 140.73.

COMMENTARY:

SATOSHI YAMADA, CHIEF QUANTITATIVE ANALYST, SMBC NIKKO SECURITIES

"The auction went smoothly. The lowest price was at the stronger-end of market expectations. On top of the new issue's relative cheapness in terms of the yield curve and swap spreads, the absolute yield level was the highest in about a month, helping to attract solid demand.

"We'll need to see the upcoming 30-year bond auction to judge whether the market is bottoming out. Superlong bonds will likely remain under pressure ahead of that auction."

BACKGROUND:

* The 10-year yield on Tuesday approached the upper-end of a well-worn range between 1.10-1.17 percent, fuelled by positive US economic data and relief that Greece will avert imminent default on its debt, after hitting a seven-month low the previous week.

* New bonds were seen being supported by the demand from players including cash-rich Japanese investors given the relative cheapness of the maturity compared to interest rate swaps and to longer term cash bonds.

Copyright Reuters, 2011