Japanese govt bond prices end morning mixed ahead of 10-yr bond auction

Japanese govt bond prices end morning mixed ahead of 10-yr bond auction

	Published : Thu, 01 Feb 2007 04:08 By : Agencies Print this Story

TOKYO (XFN-ASIA) - Japanese government bond prices ended the morning session mixed in directionless trade as investors await the outcome of today's auction of 10-year government bonds, dealers said.

But longer tenors drew healthy buying, with investors heartened by the sharp gains of US Treasurys after the US Federal Open Market Committee pointed to easing inflationary pressure there, they said.

At the break, the yield on the benchmark 10-year bond was at 1.700 pct, up from 1.695 pct at the close yesterday.

The yield on the lead five-year note was steady at 1.175 pct, while the yield on the two-year debt edged up to 0.725 pct from 0.720 pct.

The yield on the bellwether 20-year bond slid to 2.150 pct from 2.160 pct and the yield on the 30-year bond declined to 2.405 pct from 2.410 pct.

Bond prices move inversely to yields.

The price of the 10-year bond futures contract inched up to 134.54 yen from 134.51 yen in late trading yesterday.

The Ministry of Finance said it has set a coupon of 1.7 pct on 1.9 trln yen worth of 10-year government bonds it will auction today, unchanged from the coupon set during the previous auction on Jan 10.

At the previous auction of 10-year debt last Jan 10, the lowest accepted price was 99.70 yen, giving a yield of 1.735 pct, with a bid-to-cover ratio of 2.465 to one.

Dealers some short-term players were seen reducing their holdings of 10-year government bonds to adjust their positions in preparation for the auction of the 10-year government bonds, which will be merged with the current issue.

But longer-dated bonds were in focus, tracking the overnight fall in the yield of the benchmark 10-year US Treasury note to 4.82 pct from 4.88 pct late Tuesday.

The steep decline in US Treasurys came after the Federal Reserve, in the economic assessment released after it decided to leave short-term interest rates unchanged at 5.25 pct, said that readings on core inflation have 'improved modestly' in recent months.

The accompanying statement also said recent data 'suggested somewhat firmer economic growth' and tentative signs of stabilization in the housing market.

Lehman Brothers strategist Makoto Yamashita said that while the sharp rally of US Treasurys lent some support to the local market, he also warned of downside risk, citing strong GDP data in the US and likely also a strong growth figure for Japan.

The US Commerce Department said GDP grew 3.5 pct year-on-year in the fourth quarter as consumers increased spending, despite a pullback in the housing market. Wall Street expected an increase of 3 pct.

The Nikkei survey of 14 private-sector research institutions found that real GDP in Japan was 0.9 pct higher in real terms in the fourth quarter of last year than in the third, growing at an annual rate of 3.7 pct.

The Cabinet Office will announce official preliminary GDP figures Feb 15.

'While it is far from clear whether the Bank of Japan will hike interest rates here in February, these sets of data and the economic outlook seem to suggest that the global economy now faces upside potential rather than downside risk,' Yamashita said.

'Such bullish view on the economy should constrain the Japanese bond's market upside, especially the longer tenors,' he said.

(1 usd = 120.60 yen)

yasuhiko.seki@xfn.com