Japanese government bond prices edged up on Monday, buoyed after US Treasuries extended gains following the successful absorption of new debt the previous week and as Tokyo's Nikkei stock average sagged. US Treasuries rallied on Friday, pulling benchmark yields further back from eight-month highs above 4 percent, as investors were relieved that the market managed to absorb $65 billion of new debt over the week.
"There seem to be many investors looking for a chance to buy JGBs," said Mari Iwashita, chief market economist at Daiwa Securities SMBC. "Some of them picked up bonds taking their cue from a rise in Treasury prices. September 10-year futures advanced 0.15 point to 136.16.
The 10-year yield was unchanged on the day at 1.510 percent, after slipping as low as 1.500 percent. The benchmark yield rose to 1.560 percent on Thursday, the highest since October 22. Tokyo's Nikkei share average ended 1 percent lower on Monday, though it managed to stay above the psychologically important 10,000 level.
Analysts said the focus of JGB investors was likely to remain on Treasuries with trading factors in Japan limited this week. "JGB futures are moving in a range due to limited incentives, while cash JGBs of longer maturities are weighed ahead of the 20-year auction," said Tatsuo Ichikawa, a senior fixed-income strategist at RBS Securities.
Japan's Ministry of Finance will offer 900 billion yen ($9.2 billion) of 20-year bonds on Wednesday, with market participants expecting decent investor demand after the 20-year yield reached a 7-1/2-month high of 2.2 percent last week. The 20-year yield was up 0.5 basis point at 2.175 percent and the 30-year yield rose 2.5 basis points to 2.310 percent.
The five-year yield fell 1 basis point to 0.850 percent on demand from some domestic investors. The yield curve steepened a little, as a result. The Bank of Japan began a two-day policy meeting on Monday, at which the central bank is widely expected to keep interest rates unchanged at 0.10 percent. As of March, the BOJ held nearly 44 trillion yen of JGBs, compared with around 76.9 trillion yen of notes in circulation. Its JGB holdings are estimated to reach the self-imposed limit in about four years following the outright buying boost.
But some have suggested that the BOJ buy even more debt to help the economy, which may result in the central bank having to bend its self-imposed regulation. Long-term bond yields globally have climbed this year as waves of government debt being issued around the world to finance stimulus measures have raised concerns about the ability of markets to handle the issuance glut.
On Thursday the 10-year benchmark JGB yield rose to an eight-month high after its US counterpart spiked to 4 percent following a lacklustre 10-year tender and news that Russia will reduce the share of Treasuries in its gold and forex reserves.