JGB yield curve flattens as superlongs find buyers

* Superlongs gain on bargain hunting

* 10-year/20-year yield spread tightest in 8 weeks

* Higher coupon on new 2 years seen drawing investors

By Shinichi Saoshiro

TOKYO, Nov 25 (BestGrowthStock) – The Japanese government bond yield
curve flattened on Thursday as shorter-dated maturities extended
losses while superlongs gained on bargain hunting.

JGBs began the day on the back foot due to an early jump in
Tokyo’s Nikkei but retraced losses as stocks ran out of steam
with tensions still lingering in the Korean peninsula.

The bond market drew further support as superlongs gained on
bargain hunting from investors including life insurers.

The 10-year/20-year yield spread tightened to an eight-week
low of 79.5 basis points.

“The curve is flattening on two main factors. One is investor
bargain hunting in superlongs after their yields rose high
enough,” said a fund manager at a domestic asset management firm.

“The other is the ongoing selling of 10-year maturities by
players such as banks, who had misread the market and bet on
long-end yields dropping much more on the Fed’s quantitative
easing.”

Market players said superlongs could find further support
when index-following investors begin extending the durations of
their bond holdings towards the month-end.

The 20-year yield (JP20YTN=JBTC: ) slipped 1 basis point to
1.920 percent, pulling away from a five-month high of 1.980
percent hit last week.

The benchmark 10-year yield (JP10YTN=JBTC: ) stood unchanged at
1.125 percent after touching a two-month high of 1.140 percent.

The two-year yield (JP2YTN=JBTC: ) climbed 0.5 basis point to
0.165 percent after marking 0.170 percent, an eight-month peak.

The market expected the recent rise in the two-year yield to
work in favour of Thursday’s 2.6 trillion yen ($31.1 billion)
two-year JGB auction, as the Ministry of Finance raised the new
paper’s coupon by 10 basis points to 0.2 percent.

The 0.2 percent coupon is the highest since the July auction
and analysts see this as a significant draw to investors.

The auction results will be released at 0345 GMT.

December JGB futures (2JGBv1: ) inched up 0.01 point to 141.37
after hitting 141.14, a two-month low.

Tokyo’s Nikkei (.N225: ) gained 0.4 percent after rising as
much as 0.9 percent. The feeble bounce came a day after stocks
fell on risk aversion following a rise in tensions in the Korean
peninsula. [.T]

North Korea on Tuesday fired dozens of artillery shells at a
South Korean island, prompting a return of fire by the South
which warned of “enormous retaliation” if Pyongyang took more
aggressive steps. [ID:nL3E6MN0SQ]
(Editing by Joseph Radford)

JGB yield curve flattens as superlongs find buyers