December 7, 2016 / 6:32 AM / 7 months ago

JGBs mixed as superlong zone droops ahead of 30-year sale

3 Min Read

TOKYO, Dec 7 (Reuters) - Benchmark Japanese government bonds firmed slightly on Wednesday, though superlong JGBs weakened as investors positioned for the next session's 30-year sale.

The benchmark 10-year yield edged down 1 basis point (bp) to 0.035 percent. December 10-year JGB futures ended up 0.18 point at 150.57.

But the 20-year JGB yield added 1 basis points to 0.510 percent after earlier rising to 0.520 percent, its highest level since March.

The 30-year JGB yield added 0.5 bp to 0.630 percent, while the 40-year JGB yield rose 1 bp to 0.740 percent.

"The short end is a little bit up today, while the long end is still weak, partly because there's a 30-year auction tomorrow, and yesterday's liquidity enhancement auction didn't go well," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.

The Ministry of Finance will offer about 800 billion yen ($7.00 billion) of 30-year JGBs on Thursday.

An auction on Tuesday of 400 billion yen of off-the-run JGBs, intended to enhance market liquidity, drew tepid demand.

Matsukawa added that an expected tax revenue shortfall in the current fiscal year through March 2017 also undermined sentiment for longer maturities.

"Initially, we thought there might be issuance reduction in the 20-and 30-year sectors, but it seems that due to a lack of tax revenue, the reduction will come from the short end only, which disappointed some people believing there would be some reduction next year," he said.

Meanwhile, the yield on the 6-month treasury bill fell 6.4 bps to minus 0.370 percent, its lowest level since July, after strong demand at a regular sale of the notes.

Bank of Japan Deputy Governor Kikuo Iwata said the central bank has not shifted its focus away from the pace of money printing, exposing a rift in the central bank's policy board on how best to pull Japan out of deflation.

Iwata's view contrasted with those expressed by BOJ Governor Haruhiko Kuroda, who has said the central bank may slow the pace of money printing if it can hit its interest rate targets, set under a policy revamp in September, with fewer asset purchases.

"I would like to emphasise that the BOJ will continue expanding the monetary base in the future under its new policy framework," Iwata told business leaders in Nagasaki, southern Japan, on Wednesday. ($1 = 114.2600 yen) (Reporting by Tokyo markets team; Editing by Richard Borsuk)

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