TOKYO, July 1: Supply concerns ahead of this week’s Japanese government bond sales pressured prices and pushed up yields on Monday, against the backdrop of improving business sentiment signalled by the Bank of Japan’s quarterly tankan survey.
The Ministry of Finance will offer 2.4 trillion yen ($24.16 billion) of 10-year bonds on Tuesday, followed by an auction of 600 billion yen of 30-year debt on Thursday.
‘The 10-years are cheapening up ahead of the auction, and that happens with most auctions these days,’ said Neale Vincent, strategist at Nomura Securities in Tokyo.
‘This is understandable with the BOJ attempting to hold rates much lower than they would naturally be, based on regular economic fundamentals,’ he said.
The central bank buys an amount equal to about 70 percent of monthly issuance under its radical easing scheme unveiled two months ago, aimed at achieving a two-percent inflation target in two years.
Because of this, major Japanese banks cut their JGB holdings to a nearly 2-1/2-year low in May and piled the extra cash in central bank deposits instead of investing in risky assets, according to BOJ data released on Monday.
The 10-year yield added 3.5 basis points to 0.875 percent, after rising as high as 0.890 percent, the upper end of the range of 0.80 to 0.90 percent in which it has stuck for the past four weeks.
Ten-year JGB futures slipped 0.39 point to 142.31.
The closely-watched BOJ tankan survey released early on Monday showed Japanese manufacturers’ sentiment turned positive in the three months to June for the first time in nearly two years.
The upbeat results heighten the chance the central bank will hold off on additional monetary easing in the coming months and consider revising up its assessment of the economy at next week’s rate review, analysts say.
Stronger equities also undermined demand for fixed-income assets. The Nikkei stock average ended up 1.3 percent on Monday.
The superlong sector underperformed, with the 30-year zone particularly weak ahead of Thursday’s sale of that maturity.
The 20-year yield rose 4 basis point to 1.735 percent and the 30-year yield added 4.5 basis points to 1.870 percent.
In addition to domestic supply concerns, JGB market participants will also focus on U.S. Jobs data due on Friday. The U.S. Federal Reserve has said it will begin to consider tapering its bond-buying stimulus as the economy improves. Such expectations have pushed up U.S. Treasury yields, which adds to upward pressure on JGB yields.
(agencies)
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