Japanese government bonds bounce back on 20-year auction

23 Jan, 2004

Japanese government bond (JGB) prices bounced back on Thursday following a good result at a 500 billion yen ($4.7 billion) 20-year JGB auction.
The sale of reopened 65th 20-year JGBs drew bids 3.05 times as much as the offer, the highest bid-to-cover ratio for a 20-year JGB auction in nearly seven years.
The tail, or gap between average and lowest prices, was 0.09. That was smaller than in the previous four 20-year JGB auctions - another indication of strong demand.
"The auction was pretty good," said Hidenori Suezawa, chief strategist at Daiwa Securities SMBC. "The yield curve was steepening before the auction, which has made it easier for investors to buy."
The price of key 10-year JGB futures for March delivery rose 0.22 point to 138.79.
At 0600 GMT, The benchmark 10-year JGB yield fell two basis points on the day to 1.315 percent.
The key five-year JGB yield fell one basis point to 0.530 percent and the 65th 20-year JGBs were yielding 1.840 percent, down two basis points on the day.
But noting that long JGBs had been sold sharply ahead of the auction, some see the latest fall in yields as nothing more than an adjustment.
"This is an adjustment to the recent steepening of the yield curve," said Atsushi Mizuno, chief economist at Deutsche Securities. "I don't think the 20-year JGB yield will fall below 1.8 percent.
The market is still essentially in range." Just before the auction, the spread between 10- and 20-year yields grew to 53.5 basis points, its widest in nearly three months. It stood at 52.5 basis points at 0600 GMT.
"Globally, bonds and share prices are trading in range recently because there is no decisive factor," Mizuno added.
Japanese shares stalled, with the Nikkei average ending the day down 0.02 percent at 11,000.70.
The two-year JGB yield fell 0.5 basis point to a five-month low of 0.070 percent on Thursday.
The BoJ raised its target for excess funds in the banking system to 30-35 trillion yen ($280-326 billion) from 27-32 trillion yen, enhancing what it calls its "quantitative easing" policy.

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