April 28, 2017 / 6:43 AM / 9 months ago

JGBs firm on strong 2-year sale as investors await BOJ's purchase plans

TOKYO, April 28 (Reuters) - Japanese government bonds firmed on Friday after a two-year auction met strong demand, as investors awaited details of the Bank of Japan’s regular bond-purchasing operations for next month.

The benchmark 10-year JGB yield was steady at 0.015 percent , while 10-year JGB futures ended up 0.04 point at 151.02.

At the Ministry of Finance’s sale of 2.2 trillion yen ($19.79 billion) of two-year JGBs with a 0.10 percent coupon, some 97.2833 percent of the bids were accepted at the lowest price of 100.585.

The sale drew bids of 5.51 times the amount offered, significantly above the previous sale’s bid-to-cover ratio of 3.82 times, indicating stronger demand for the bonds.

The two-year JGB yield was down 1.5 basis points at minus 0.210 percent, while the five-year yield shed 1 basis point to minus 0.160 percent.

In the superlong zone, the 20-year JGB yield shed 1.5 basis points to 0.555 percent, while the 30-year JGB yield also fell 1.5 basis points to 0.780 percent.

The BOJ will release details of its planned purchases in May later on Friday at 0800 GMT. In April, the central bank trimmed the amount of shorter-dated JGBs it bought compared to March.

The BOJ’s massive asset purchase programme has reduced market liquidity. In an attempt to reduce volatility, the central bank has been tweaking its bond-buying.

However, BOJ officials say they no longer place as much importance on the guidance as before, or on when to remove or change their language, because the recent slowdown in the central bank’s bond buying has not disrupted markets.

While some officials see no problem removing the language, others fret of the risk that markets could interpret such a move as signalling a full-scale tapering of the BOJ’s asset purchases.

BOJ Governor Haruhiko Kuroda has remained non-committal, repeating only that the bank’s main policy target was now interest rates, not the pace of bond buying.

He has also stressed that the BOJ can now achieve its interest rate targets with less bond buying than before, given its increasing dominance in the bond market.

“Since we adopted our yield curve control, the actual amount of bond buying has fluctuated from time to time. Sometimes the pace is above or below the guidance ... But I don’t think we are facing any problems achieving our yield targets while having the 80-trillion-yen guidance in place,” Kuroda told a news conference on Thursday after the BOJ’s regular policy meeting, when asked about the guidance.

On Thursday, the BOJ kept monetary policy unchanged as expected, but offered its most optimistic assessment of the economy in nine years, signalling its confidence that a pick-up in overseas demand will help sustain an export-driven recovery.

Japanese economic data released early in the session showed Japan’s core consumer prices rose at a slower than expected pace in March from a year earlier, but they posted their third straight month of increase, driven by rising energy costs. ($1 = 111.1600 yen) (Reporting by Tokyo markets team; Additional reporting by Leika Kihara; Editing by Simon Cameron-Moore)

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