June 18, 2013 / 2:37 AM / 4 years ago

JGBs edge up as equities wilt; 20-year sale awaited

TOKYO, June 18 (Reuters) - Japanese government bonds edged higher on Tuesday as equities erased early gains, though moves were small as the market positioned for this session’s offering of 20-year debt and awaited the outcome of this week’s U.S. Federal Reserve meeting.

* The Fed will hold a regular meeting on Tuesday and Wednesday this week. JGB yields often track Treasury yields, so Japanese investors will watch for any signs the U.S. central bank is considering slowing its asset purchases.

* “Of course we’re watching to see what the Fed says and what U.S. yields do, but the JGB market is super big domestic market that moves on its own supply and demand factors,” said a fixed-income fund manager at a Japanese asset management firm.

“Today’s auction will probably proceed smoothly, although there is nothing to get excited about,” he added.

* The Ministry of Finance offered 1.2 trillion yen ($12.66 billion) worth of 20-year bonds with a coupon of 1.7 percent, up from the 1.6 percent coupon at last month’s sale of that maturity.

* “Overall, the 20-year auction appears attractive from both an outright standpoint and relative to other sectors, but we think the latter approach is probably safer given concerns over U.S. Treasury yields prior to the FOMC meeting this week,” strategists at Barclays said in a note to clients on Tuesday.

Since they assess 1.8 percent as a dip-buying target in the 30-year sector, they recommend purchasing the 20-year tenor relative to 10-year bonds or swaps.

* The 10-year yield edged down half a basis point to 0.830 percent, still within its recent trading range of 0.80 to 0.90 percent and moving away from its 13-month high of 1 percent hit on May 23.

* The 10-year futures contract ended morning trade up 0.18 point at 142.89 after earlier dropping as low as 142.62. JGB futures extended gains after the Nikkei stock average turned negative and shed 0.6 percent.

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