June 5, 2012 / 5:12 AM / 5 years ago

JGBs extend losses after lacklustre demand at 10-year sale

TOKYO, June 5 (Reuters) - Japanese government bonds extended losses on Tuesday after an auction of 10-year notes met only mediocre demand, which some fear could bode poorly for a 30-year sale later this week.

* The offering of 2.3 trillion yen of 10-year notes carried a 9 percent coupon, matching that of the previous sale.

It garnered a lowest price of 100.33, slightly below market expectations. The tail between the average and lowest accepted prices widened to 0.07, from 0.01 at the past five monthly 10-year sales.

The bid-to-cover ratio slipped to 2.95 from last month’s 3.74 and also came in below the 3.10 average of the past year’s sales.

* “It was on the weak side, and it has all to do with the European and U.S. market correction last night,” said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.

“This poor auction could potentially fuel some bad auction results this week and next week, but that said, unless we see an outright resolution to Europe - which I don’t see happening anytime soon - we won’t see the flight to quality reverse itself,” he said.

* Finance chiefs of the Group of Seven leading industrialised nations are slated to hold an emergency conference call later on Tuesday to address the euro zone’s deepening debt crisis.

While many strategists are skeptical that any concrete steps will emerge from the call, some investors used it as an opportunity to take profits after Europe-spurred rallies in U.S. Treasuries as well as German bunds sent yields to historical lows.

* Japan’s finance ministry will also auction 700 billion of 30-year bonds on Thursday, followed by 5- and 20-year bonds next week.

* The 10-year JGB yield added 2.5 basis points to 0.840 percent, rising as high as 0.845 percent after the auction results were announced.

Benchmark yields dipped to 0.790 percent in the previous session, their lowest level since July 2003.

* The 10-year JGB futures contract fell 0.26 point to 143.53, dropping as low as 143.47.

On Monday, it rose as high as 144.06, the highest level for the front-month contract since October 2010.

* The yield curve steepened, with the 20-year JGB yield adding 3 basis points to 1.665 percent and the 30-year JGB yield also adding 3 basis points to 1.820 percent.

$1 = 78.320 yen Reporting by Lisa Twaronite; Editing by Richard Pullin

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