October 14, 2016 / 6:41 AM / in 9 months

Short-dated JGBs gain after strong 5-yr auction

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TOKYO, Oct 14 (Reuters) - Short-dated Japanese government bonds rose in price on Friday after an auction of five-year JGBs drew strong demand, although longer maturities dipped after their yields hit one-week lows the previous day.

The five-year JGB yield fell 0.5 basis point to minus 0.205 percent, after the auction 2.4 trillion yen five-year JGBs by the Ministry of Finance drew strong demand from brokerage traders who have short positions.

The tender drew bids of 4.31 times the amount on offer, producing the highest bid-to-cover ratio since June. The tail, or the gap between the lowest and average price, was zero.

Many brokerage traders are thought to have had a big short positions in the five-year paper, market players said.

"In the past, people held long positions and unwound them by selling to the BOJ, because they expected yields to fall. But these days, because bond yields are supposed to stay flat, they sell to the BOJ by going short, hoping to cover the position at auctions," said a fund manager at a Japanese asset management firm.

The two-year notes yield also fell 0.5 basis point to minus 0.275 percent.

Yields on longer dated maturities rose, with the benchmark 10-year yield rising 0.5 basis point to minus 0.060 percent . The 30-year yield went up 1.5 basis point to 0.495 percent.

The price of 10-year JGB futures dipped 0.03 point to 151.84 , capped at 151.92 for four straight sessions.

Reporting by Hideyuki Sano; Editing by Eric Meijer

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