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Benchmark JGBs edge down, 20-year sale bolsters superlong zone
June 13, 2017 / 6:39 AM / a month ago

Benchmark JGBs edge down, 20-year sale bolsters superlong zone

3 Min Read

TOKYO, June 13 (Reuters) - Benchmark Japanese government bonds inched lower on Tuesday, though the curve flattened as decent results at a 20-year auction supported the superlong zone.

The 10-year cash JGB yield added half a basis point to 0.060 percent, while the September 10-year JGB futures contract shed 0.06 point to finish at 150.39.

At the Ministry of Finance's sale of one trillion yen ($9.09 billion) of 20-year JGBs with a 0.60 percent coupon, about 64.9734 percent of the bids were accepted at the lowest price of 100.250.

The sale drew bids of 3.98 times the amount offered, up from the previous sale's bid-to-cover ratio of 3.84 times. The tail between the average and lowest accepted prices narrowed to 0.05, compared with that of previous month's offering at 0.09, indicating stronger demand for the bonds.

In the superlong zone, the 20-year JGB yield fell half a basis point to 0.560 percent, while the 30-year JGB yield was also down half a basis point at 0.820 percent.

The five-year yield rose half a basis point to minus 0.075 percent, after earlier nudging up to a four-month high of minus 0.065 percent. A break of that level would take it to its highest since mid-December.

JGB yields also felt some upward pressure from U.S. Treasury yields, which rose on Monday after tepid demand at a 10-year Treasury auction offset strong demand at a three-year auction amid uncertainty about the Federal Reserve's policy outlook on Wednesday.

The U.S. central bank is likely to go ahead with another 25-basis-point rate increase on Wednesday, the fourth hike of a rate increase cycle that started in December 2015, citing the improvement in the economy and temporary factors driving down prices.

A Bank of Japan official on Tuesday rebuffed speculation that it was engaging in "stealth tapering" as its massive asset-buying programme nears its limit, stating instead its reduced bond buying reflected receding upward pressure on Japanese yields from U.S. Treasuries.

Masayoshi Amamiya, the BOJ's executive-director overseeing monetary policy, told Parliament that the pace of bond buying had slowed because U.S. Treasury yields have fallen - enabling the central bank to cap Japanese long-term rates while also reducing its purchases.

$1 = 110.0200 yen Reporting by Tokyo markets team; Editing by Sherry Jacob-Phillips

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