JGBs steady before auction results, stocks support

Δημοσιεύθηκε: 12 Μαΐου 2009 - 04:18

By Rika Otsuka

TOKYO, May 12 (Reuters) - Japanese government bonds were little changed on Tuesday as traders waited for the results of an auction of benchmark 10-year notes to see how strong investor demand is amid a global recovery in stocks.

The Ministry of Finance offered 1.9 trillion yen ($19.52 billion) of 10-year debt with a coupon of 1.5 percent on Tuesday, up from 1.3 percent at the previous four auctions for bonds with the same maturity and the highest since November. The results are due at 12:45 p.m. (0345 GMT).

The sale is seen as an important test of demand following the return of investors after Japan's Golden Week holidays. It is also the first major JGB auction since a two-year sale on April 23.

Tokyo's Nikkei average has rallied in the last two weeks, hitting a six-month closing high on Monday on growing optimism that the worst may be over in the global economic slump.

The Nikkei was down 1.4 percent by midday, taking a breather following the recent bull run.

'Investors are cautious about today's auction, with few expecting robust demand,' said Noriyuki Fukuda, a fixed-income strategist at Morgan Stanley. 'At the same time, the JGB market is drawing support from a fall in stocks and overnight gains in U.S. Treasuries.'

June 10-year JGB futures dipped 0.04 point to 136.66 after spending most of the morning in positive territory.

The benchmark 10-year JGB yield edged up 0.5 basis point to 1.460 percent, having risen from a one-month low of 1.395 percent first hit on May 1.

Market participants are watching whether long-term institutional investors, such as life insurers, have a decent appetite for today's auction.

So far in the financial year that started on April 1 investor demand for JGBs has been lukewarm as many believe bond yields could rise as the government boosts its debt issuance in coming months.

The MOF said last month it would issue an extra 16.9 trillion yen of JGBs this fiscal year to pay for economic stimulus, with the extra issuance due to come to the market starting in July.

But analysts said a sharp bond sell-off is unlikely at a time when Japan's economy has slipped back into deflation, and due to expectations it will take some time before the Bank of Japan starts to raise interest rates from the current 0.1 percent.

Such expectations benefit the short-term sector. The two-year yield was down 0.5 basis point to 0.390 percent.

Longer-dated bonds suffered ahead of a 40-year JGB auction on Thursday. The 30-year yield rose 2 basis points to 2.210 percent .

U.S. Treasuries rallied on Monday as stocks took a dive and the Federal Reserve made its largest foray yet into longer-dated government bonds.

(Editing by Joseph Radford)

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