JGBs steady to firmer, auction meets solid demand
* 10-yr yield touches lowest since early Oct
* MOF's JGB auction attracts solid demand
By Masayuki Kitano
TOKYO, Nov 25 - The 10-year Japanese government bond yield hit its lowest in nearly seven weeks on Wednesday, with JGBs supported by a lacklustre performance from Tokyo stocks and the yen's rise against the dollar.
Two-year notes held onto their gains from earlier in the day after an auction in the maturity attracted solid demand.
A sign that the auction went well was that its lowest price was slightly stronger than expected, said Takafumi Yamawaki, an interest rate strategist for BNP Paribas Securities.
"It shows there is an overflow of money in the short-term sector," Yamawaki continued, adding that weak corporate demand for bank loans is probably contributing to the abundance of cash held by JGB investors such as banks.
The benchmark 10-year JGB yield dipped to as low as 1.280 percent <JP10YTN=JBTC>, its lowest since early October. After trimming gains, the 10-year yield was unchanged on the day at 1.290 percent.
The lead December 10-year JGB futures contract hit a seven-week high of 139.63 <2JGBv1>. It later trimmed its gains to climb 0.05 point on the day at 139.49.
The two-year JGB yield dipped 1 basis point on the day to 0.235 percent <JP2YTN=JBTC>.
The Nikkei share average touched a four-month intraday low at one point, while the yen hit a seven-week high against the dollar. [.T] [FRX/]
A rise in the yen is seen as supportive for JGBs as it can raise concerns about the outlook for Japanese exporters' earnings and also because it can lower import prices and add to any deflationary pressure.
The Ministry of Finance's auction of 2.6 trillion yen ($29.43 billion) in two-year JGBs produced a tail of 0.004, down from 0.005 at the previous auction in October.
The tail tightened even though Wednesday's two-year offer was the first to be increased by 200 billion yen.
A tight or small tail, which is the difference between the average and lowest prices at a bond auction, shows there is more consensus about how the newly-auctioned debt should be priced and is an indication of good demand.
The increase in two-year JGB issuance stems from the MOF's decision in October to reallocate some JGB issuance originally intended for retail investors to the institutional market because of weak retail demand. [ID:nT78079] ((masayuki.kitano@thomsonreuters.com; Reuters Messaging: masayuki.kitano.reuters.com@reuters.net; +81-3-6441-1872)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))