April 4, 2017 / 6:20 AM / 5 months ago

JGBs mostly higher, underpinned by solid demand at 10-year sale

TOKYO, April 4 (Reuters) - Japanese government bonds mostly gained on Tuesday, bolstered by safe-haven buying as equities dipped and on decent results at an auction of 10-year JGBs.

The benchmark 10-year JGB yield fell 1 basis point (bp) to 0.060 percent, while 10-year JGB futures ended up 0.18 point at 150.40.

"There was a moderate flight-to-quality move, and also a supportive JGB auction today," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

The Ministry of Finance offered 2.3 trillion yen ($20.83 billion) of 10-year JGBs with a 0.1 percent coupon. Some 57.3576 percent of the bids were accepted at the lowest price of 100.320.

The sale drew bids of 3.96 times the amount offered, up from the previous sale's bid-to-cover ratio of 3.74 times, indicating improved demand for the bonds. The tail between the average and lowest accepted prices narrowed slightly to 0.03, compared with that of last month's offering at 0.04.

"The auction results were fair, as most peopled had expected. It seems that Japanese real-money investors have plenty of cash liquidity at hand, at the beginning of the fiscal year, and since U.S. Treasury yields have stopped rising and are gradually descending now," Muguruma said.

Most people still expect the U.S. Federal Reserve to tighten, she added, but "it seems the U.S. Treasury market has already priced that in."

Benchmark U.S. 10-year yields touched more than one-month lows on Monday.

The two-year JGB yield fell 1 bp to minus 0.180 percent on Tuesday, moving away from the previous session's high of minus 0.170 percent, which was its highest level since late December.

Shorter maturities had come under pressure on Monday after the Bank of Japan announced on Friday that it would trim the amount of one- to three-year JGBs, and three- to five-year JGBs it buys in its operations this month, while leaving planned purchase amounts of longer-dated JGBs unchanged.

The superlong zone gave up its slight gains late in the session on Tuesday, with the 20-year JGB yield flat at 0.635 percent, while the 30-year JGB yield added 1 bp to 0.855 percent.

Against the backdrop of a solid JGB auction, the Nikkei stock average foundered, and ended down 0.9 percent. ($1 = 110.4000 yen) (Reporting by Tokyo markets team; Editing by Sunil Nair)

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