Demand at Japan’s auction of 10-year government bonds was stronger than the 12-month average, as expectations for rate hikes by the central bank recede and upward pressure on longer-maturity yields eases. The nation’s bonds rallied.
The bid-to-cover ratio was at 3.51, compared with 3.66 at the previous auction last month and higher than the 12-month average of 3.14. In another sign of firm demand, the tail, or gap between average and lowest-accepted prices, came in at 0.03, compared with 0.01 at the previous sale.
“It is a strong result with higher bid-to-cover ratio than the average of the last three auctions and the lowest price above survey price,” said Anmol Agrawal, strategist at Intouch Capital Markets Pte Ltd. “It was reflected in the 20-tick spike in the futures.”
Japan’s sovereign debt auctions have been in the spotlight since late May after a poorly received auction of 20-year bonds sent super-long yields to record highs. That spike in yields in Japan flowed through into global debt markets, where investors have been on guard over expanding government deficits.
The 10-year JGB yield fell 4bps to 1.39% after the auction results. Bond futures rose 22 ticks to 139.24.
What Bloomberg Strategists Say…
JGB futures are firmer after Tuesday’s 10-year auction produced solid metrics, but the good mood will struggle to sustain after the strong Tankan report that came earlier.
The data opened the door for BOJ Governor Ueda to lean hawkish when he speaks later today at Sintra in Portugal. With a tricky 30-year debt sale still to come on Thursday, JGB traders are likely to curb their enthusiasm.
— Mark Cranfield, MLIV Strategist. Read more on MLIV
In order to stabilize demand, the finance ministry unveiled changes to its bond issuance plan last month. The 10-year issuance amount was left unchanged, underscoring steady investor appetite for the sector.
Separately, the Bank of Japan said last month it would slow down its withdrawal from the market from next year in a move aimed at ensuring stability.
The results augur well for the 30-year government bond auction to be held on Thursday.
This article was generated from an automated news agency feed without modifications to text.
