March 10, 2017 / 5:47 AM / 5 months ago

Short-term JGB yields rise slightly after BOJ reduces buying

TOKYO, March 10 (Reuters) - Short-term Japanese government bond yields ticked up on Friday after the Bank of Japan reduced its purchase in those maturities, while longer-dated bonds were mixed ahead of U.S. jobs data later in the day.

The BOJ reduced its purchases of one- to three-year JGBs to 300 billion yen ($2.60 billion) on Friday, 20 billion yen less than its previous purchase of those maturities last week, and the smallest amount since September 2014.

The two-year yield rose 1.5 basis points to minus 0.255 percent.

But market players said the move was not a surprise given the shortage of two-year notes in the market.

Also for the same reason, the BOJ also reduced buying in discount bills, to 250 billion yen, the smallest amount since late 2015.

That helped to lift the three-month bill yield by 1.5 basis points to minus 0.399 percent.

Other maturities were steadier, with the 10-year yield down 0.5 basis point at 0.080 percent, while the 20-year yield up 1.0 basis point at 0.675 percent.

The price of March 10-year JGB futures rose 0.05 point to 150.43. The benchmark status is expected to shift to the June contract, which rose 0.03 point to 149.98.

Japanese bonds held relatively stable despite the fall in European and U.S. bonds after the European Central Bank signalled there was no longer a sense of urgency to prop up the euro-zone economy.

"The ECB in a sense is saying it is not going to do more QEs. And markets now think the ECB is not just tapering but raising rates quite early, pricing in 70-80 percent chance of a rate hike of 10 basis points in the second quarter of next year," said Hideki Kishida, a senior strategist at Nomura Securities.

The Japanese derivatives markets are pricing in no real chance of a rate hike in the coming year. (Reporting by Tokyo Markets Team; Editing by Subhranshu Sahu)

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