August 29, 2017 / 7:43 AM / a year ago

Benchmark JGB yield edged down to zero as risk aversion reigns

TOKYO, Aug 29 (Reuters) - Japanese government bonds largely firmed on Tuesday as a North Korean missile launch sapped investors’ appetite for risk, with the benchmark 10-year yield falling to zero for the first time in over four months.

The 10-year cash JGB yield inched down half a basis point to zero percent for the first time since April 19.

The September 10-year JGB futures contract finished up 0.09 point at 151.26, after touching its highest levels since November.

In the superlong zone, the 20-year JGB yield edged up half a basis point to 0.545 percent, as the Ministry of Finance conducted a sale of off-the-run JGBs aimed at enhancing liquidity.

Tensions on the Korean peninsula had eased in recent sessions, but Pyongyang rekindled them by firing a missile on Tuesday morning that flew over Japan and landed in the Pacific waters off the northern region of Hokkaido.

The market largely shrugged off economic data released early in the session that showed Japan’s household spending unexpectedly fell in July though the labour market continued to strengthen.

JGBs also got a lift from firmer U.S. Treasuries, as the U.S. benchmark yield fell on Monday after strong demand at a sale of five-year notes.

The benchmark 10-year note yield extended its fall after the North Korean missile launch, dropping as low as 2.11 percent, its lowest since mid-June.

The possibility that the Bank of Japan will trim its JGB purchases under its yield curve control scheme kept gains in check.

On Wednesday, the BOJ will purchase between 350 billion yen and 550 billion yen of five- to 10-year JGBs, as well as longer maturities, under its regular buying operations. On Thursday, it will detail its buying intentions for September. (Reporting by Tokyo markets team; Editing by Amrutha Gayathri)

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