March 1, 2012 / 3:06 AM / 6 years ago

JGBs erase early losses as smooth 10-yr auction seen

TOKYO, March 1 (Reuters) - Japanese government bonds edged up on Thursday, reversing slight earlier losses on expectations of healthy demand at the day’s 10-year bond auction.

* Japan’s finance ministry is auctioning 2.2 trillion yen of new 10-year notes.

* “We think banks will be buyers. The stock market’s recent gains means they don’t need to take profits on their bond holdings, and some have cash they need to allocate before the end of Japan’s fiscal year this month,” said a fund manager at a Japanese trust bank.

* The Nikkei share average gained 10.5 percent in February, aided by the Bank of Japan’s surprise easing that month. The BOJ’s move also underpinned bond prices, as it said it will spend an extra 10 trillion yen ($125 billion) on JGB purchases of bonds with up to two years left to maturity.

* “Although there is a risk of U.S. yields rising on strong employment data, 10-yr bonds still offer superior carry at a time of low volatility and should draw a certain level of demand as a result,” strategists at Barclays Capital wrote in a note to clients.

* The yield on the latest 10-year JGBs slipped half a basis point to 0.950 percent, edging toward a 14-month low of 0.935 percent hit last month.

* Ten-year JGB futures inched up 0.02 point to 142.75.

* Longer durations were steady, with the yield on the 20-year note flat at 1.750 percent, and the 30-year yield unchanged at 1.930 percent.

* The market had a muted reaction to data released early in the session showing Japanese companies increased their capital spending by 7.6 percent in the October-December period, better than the median estimate for a 6.5 percent annual decline.

* Separate data showed foreign investors turned net buyers of JGBs in the week through Feb. 25, buying 20.8 billion yen, after sales of 660.6 billion in the previous week marked their largest net selling since June 2011.

Japanese investors, meanwhile, resumed their net buying of foreign bonds last week at the highest level since September 2011, snapping up 1.352 trillion yen. (Reporting by Lisa Twaronite; Editing by Sugita Katyal)

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