Japanese government bonds pulled back on Tuesday, pushing benchmark yields to a nine-month high, as solid gains in Tokyo shares spurred more investors to sell bonds and cut their exposure to the market. Traders said big Japanese banks continued to shed five-year notes after having already dumped the maturity in the market's sell-off, driving their yields up to the highest in nine months.
But an auction of 20-year bonds attracted the best demand for the maturity in three years, showing good hunger among institutional investors for longer-dated issues and prompting some traders to say that the market may finally settle down. "For the moment, the market will probably stabilise and won't be sold so heavily," said a senior trader at a European investment bank.
The new 20-year issue also attracted good buying because its 2.4 percent coupon was the highest in nearly four years, analysts said. As a result, bids in the auction totalled 4.29 times the 800 billion yen on offer, the highest since the May 2005 offer.
JGBs have been slammed as many market players, especially Japanese banks, have rushed to cut back safe-haven bond holdings built up during the worst of the credit crisis. A flare-up in fears about rising inflation pressures from soaring food and energy costs has only exacerbated the sell-off.
June 10-year futures fell 0.13 point to 134.35 and dropped as low as 134.02 - just above a nine-month trough of 133.93 hit on Friday. The Nikkei share average rose 1.5 percent, bouncing back from hefty losses the previous day as some investors went bargain hunting in stocks. Since hitting bottom on March 17, the Nikkei is up nearly 18 percent, adding to the selling pressure on JGBs. The benchmark 10-year yield climbed 2 basis points to 1.760 percent after rising as high as 1.785 percent, a nine-month peak.
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