JGBs end flat

02 Oct, 2009

Japanese government bonds were little changed on Thursday, with prices trapped between profit taking for the start of Japan's new fiscal half- year and a drop in Tokyo's Nikkei stock average to a two-month closing low. Domestic investors often take profits on financial assets to book early profits at the start of new accounting periods.
"The bond market could not react straight away to weaker equities as some investors have to book profits at the start of the new fiscal year half," said Makoto Yamashita, chief Japan interest rate strategist at Deutsche Securities.
The yield curve steepened as longer-dated maturities sagged more as dealers lightened their books ahead of next week's 10- and 30-year JGB auctions. The five-year/20-year yield spread widened by 2 basis points to 147.5 basis points, its steepest since mid-September. The 10-year/20-year yield spread widened by 1.5 basis points to 77 basis points, the steepest in a month, Reuters data showed.
Bonds were slightly weighed down after the Bank of Japan's closely watched tankan survey showed that corporate sentiment continued to improve in July-September. But the market mostly took in stride the tankan results, which were in line with earlier forecasts.
The tankan's headline index for big manufacturers' sentiment improved to minus 33 from minus 48 in the June survey, after hitting a record low of minus 58 in the March survey. Economists said it remained to be seen if corporate sentiment would continue to improve going forward as stimulus from government spending may wear off and as the yen has appreciated sharply recently.
"The tankan headline figure was just as expected and had a limited impact on JGBs. Going forward, large manufacturers have hardly changed their yen forecasts and this is likely to have a negative impact on the economy," said Koji Ochiai, a senior market economist at Mizuho Investors Securities.
December 10-year JGB futures dipped 0.03 point to 139.31 after moving in a tight 0.14 point range. Traded volume was the lowest since mid-September at little over 13,000 lots. The 20-year yield rose 1.5 basis points to 2.060 percent. The benchmark 10-year yield was unchanged at 1.290 percent.
The five-year yield dipped 0.5 basis point to 0.585 percent, edging toward a four-year low of 0.560 percent hit on September 14. The two-year yield also fell 0.5 basis point, to 0.235 percent. It reached a four-year low of 0.200 percent in mid-September. The market focus was on whether the steepening of the yield curve seen this week would continue in the new fiscal half.

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