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Ten-year JGB yield unchanged but trading volatile on Fed outlook
June 24, 2013 / 6:27 AM / in 4 years

Ten-year JGB yield unchanged but trading volatile on Fed outlook

TOKYO, June 24 (Reuters) - The benchmark 10-year Japanese government bond yield was steady on Monday as weakness in Tokyo’s shares helped offset concerns over slumping U.S. Treasuries after Fed Chairman Ben Bernanke signalled the central bank could roll back its stimulus later this year.

The 10-year yield was unchanged at 0.875 percent after trading as low as 0.865 percent and as high as 0.890 percent in a choppy session.

“The morning session was mainly driven by U.S. Treasuries hitting 2.5 percent. That said, we had equities falling to negative territory in late morning session,” said Maki Shimizu, senior bond strategist at Citigroup in Tokyo.

The Nikkei share average ended 1.3 percent lower on Monday on concerns over China’s economic and financial stability, reversing early sharp gains in a volatile session.

“The market is still quite volatile. Before the current quarter, I don’t think domestic investors can buy at this point. I think they try to be prepared for the next quarter,” Shimizu said, referring to the usual practice of quarter-end or month-end buying of JGBs by lifer insurers and pension funds.

Benchmark 10-year U.S. Treasury yields on Friday rose to their highest in more than 22 months, marking a dismal week for the bond market as investors fled in the wake of the news from the Federal Reserve that it might pare its $85 billion monthly purchases of Treasuries and mortgage-backed securities in coming months if the economy strengthens.

The 10-year U.S. Treasury yield rose 41.3 basis points last week, posting the biggest weekly jump since November 2001.

Ten-year JGB futures gained 0.05 point to 142.15, after trading in a 141.84 to 142.31 range, with 30,614 contracts changing hands, down from this year’s daily average of 34,287.

The BOJ’s offer to buy 650 billion yen ($6.7 billion) worth of bonds as part of its monetary easing operations to revive the world’s third-largest economy helped support JGBs, however.

“The BOJ announcement of its operations is one of the factors,” said Yuya Yamashita, rates strategist at JPMorgan in Tokyo.

On April 4, the Japanese central bank unveiled the world’s most intense burst of monetary stimulus, promising to inject $1.4 trillion into the economy in less than two years to meet its pledge of achieving 2 percent inflation.

The 20-year yield added 2 basis points to 1.775 percent, hitting a four-week high, while the 30-year yield put on 2 basis points to 1.900 percent, also reaching a one-month high.

The five-year yield eased 1 basis point to 0.345 percent.

“Although 5s have richened slightly versus 10s since May, the basic correlation remains intact, suggesting the low, stable level of short- to medium-term yields will likely continue to contain any rise in 10-year yields to some extent,” Barclays Securities wrote in a note.

“If so, JGB long-term yields could be less likely to follow any issue in U.S. yields.”

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