Japanese government bond futures climbed on Wednesday, boosted by a rise in longer-dated US Treasuries the previous day and by buying from cross-asset traders. Gains in futures helped five-year notes, to which they are more closely linked than other maturities, steepening the yield curve a little.
But the advance in JGBs was limited as investors were hesitant to chase prices higher, with Tokyo's Nikkei stock average up 0.4 percent, moving back towards 18-month highs. "Overseas players are buying back futures, providing support for cash bonds," said Hidenori Suezawa, chief strategist at Nikko Cordial Securities.
"Meanwhile, Japanese investors are sticking to their bargain-hunting stance." Traders said overseas players who were active on Wednesday included commodity trading advisers (CTAs) and hedge funds. June 10-year JGB futures gained 0.13 point to 138.73. The rise in futures was also capped ahead of an auction of five-year debt on Thursday.
Five-year JGBs have traditionally met with demand from cash rich Japanese banks, but dealers were wary of pushing prices too high before the auction and dampening the new paper's appeal, market players said. The five-year yield was unchanged at 0.530 percent.
The benchmark 10-year yield slipped 1 basis point to 1.360 percent, having fallen from a five-month peak of 1.405 percent marked last week. The firmness in the long-end helped the yield curve bull steepen - when yields of shorter-dated debt decline more relative to longer-dated ones.
The 30-year yield inched up 1 basis point to 2.230 percent a day after a re-opening of the No 32 30-year JGB drew tepid demand as the maturity was regarded as expensive following a recent bull run. The yield struck a four-month trough of 2.200 percent last week. The 10-year/30-year yield spread widened 2 basis points to 86.5 basis points after marking a five-month low below 83 basis points on Tuesday, the culmination of a flattening phase that began a month ago.
"The flattening of the curve looks to be at an end if current market sentiment holds. But underlying demand exists from a variety of investors, so a rise in superlong yields could lead to a buying phase as we saw last month," said Kenro Kawano, a fixed-income strategist at Credit Suisse. Japan's life insurers, one of the main buyers of superlong debt, have said they want to increase holdings of these maturities if yields rise.