JGB futures bounce, caution persists before US events

* Futures bounce on rebound in Treasuries, well-received sale

* But gains made with caution ahead of U.S. data, Fed meeting

* 20-yr sale draws decent demand, coupon highest in 7 months

* Banks buy midterm debt, life insurers purchase superlongs

By Shinichi Saoshiro

TOKYO, Dec 14 (BestGrowthStock) – Japanese government bond futures
bounced on Tuesday, drawing enough impetus from a rebound in U.S.
Treasuries and a well-received 20-year sale to end the day with
gains intact.

Their performance was wobbly, however, underscoring market
caution towards sentiment spoiling with little notice should the
U.S. debt market be engulfed by turbulence again.

Treasuries have been the JGB market’s main driver this week,
in part because their recent sharp plunge has forced domestic
investors such as banks to sell JGBs to cover losses in their
foreign bond holdings.

Large banks were cited as bargain hunters of midterm JGBs but
traders remained wary as some were seen selling the maturities
heavily just the previous day to shed risk.

And with U.S. economic data and a Federal Reserve meeting
later on Tuesday potentially acting as banana skins for
Treasuries, selling by speculative players into an earlier spike
forced futures to retrace the bulk of their gains.

“Treasuries will have to convincingly halt their slide before
JGBs can think of consolidating,” said a dealer at a foreign
brokerage.

“Otherwise any bounce would fizzle, forcing JGBs to probe
lows.”

March 10-year futures (2JGBv1: ) were up 0.20 point at 139.15
after going as high as 139.46.

Tuesday’s well-received 1.1 trillion yen ($13 billion)
20-year JGB auction, the last long-dated sale of the year, eased
bond participants near-term supply concerns for the time being.

The bid-to-cover ratio, a gauge of demand at auctions, rose
to 3.52 from 2.54 at the previous sale in November and was
roughly in line with 3.59, the average ratio from the past 12
sales. [ID:nMOFLN5004]

The new paper’s 2.1 percent coupon — up by 20 basis points
from the last offering and the highest in seven months —
attracted sufficient interest from absolute yield level buyers
such as life insurers, market players said.

“Buyers saw value in the new paper. It now remains to be seen
whether more buyers are willing to step into the secondary market
and buy the issues despite the recent market turbulence,” said
Shinji Ebihara, a rates strategist at Credit Suisse.

“The auction results were good but it does not mean a sudden
end to market volatility.”

The yield curve took on a convex shape as 10-year zone JGBs,
which lack a core set of buyers, underperformed the surrounding
midterm area and superlongs.

The five-year yield (JP5YTN=JBTC: ) fell 4 basis points to
0.540 percent, while the benchmark 10-year yield (JP10YTN=JBTC: )
stood unchanged at 1.245 percent.

The No. 121 issue 20-year yield (JP20YTN=JBTC: ) dropped 4
basis points to 2.075 percent.
(Editing by Joseph Radford)

JGB futures bounce, caution persists before US events