JGB yield curve steepens after BOJ op, issuance plan

* Shorter-dated maturities edge up after BOJ operation

* MOF foregoing issue increase also helps shorter-dated JGBs

* Limited participation, low liquidity exaggerates moves

* Turnover in JGB futures lowest in 20 months

By Shinichi Saoshiro

TOKYO, Dec 27 (BestGrowthStock) – The Japanese government bond yield
curve steepened on Monday in thin year-end trade, as
shorter-dated debt gained after a Bank of Japan market operation
and an announcement late last week that Japan will not increase
issuance of those maturities next fiscal year.

The BOJ on Monday bought 150 billion yen ($1.8 billion) of
outstanding two-year and five-year JGBs as a part of its
asset-purchasing programme introduced in October when it eased
monetary policy.

The relatively small amount usually limits the operation’s
impact, but players said yields slipped on Monday as dwindling
market participation reduced liquidity.

“The operation coming in was a bit of a surprise and buoyed
the shorter-dated JGBs,” said Katsutoshi Inadome, a fixed-income
strategist at Mitsubishi UFJ Morgan Stanley Securities.

JGB 10-year futures (2JGBv1: ) rose 0.12 point to 139.85,
buoyed by gains in the underlying cash midterm JGBs. At 10,092
lots, turnover in the lead March 10-year futures was the lowest
since April 2009.

“There is very little volume in futures and the contracts
react easily to any factors out there,” said Inadome at
Mitsubishi UFJ Morgan Stanley Securities.

STEEPER CURVE

Longer-dated JGB yields edged up after the finance ministry
late on Friday unveiled its debt issuance plan for the new
fiscal year involving an increase in issuance for the
superlongs.

Japan will issue a record 144.9 trillion yen in JGBs to the
market fiscal 2011/12, putting the country’s new borrowing on
track to exceed its tax revenue for the second consecutive year.
[ID:nTWKONE66H]

Under the plan, which was in line with expectations, the
ministry plans to increase the amount of 30-year and 40-year
debt sold at each auction by 100 billion yen while keeping the
offering amounts of 20-year, 10-year, five-year and two-year
paper unchanged.

The 144.9 trillion yen figure, which refers to the amount of
JGBs to be sold to institutional investors via regular auctions,
is up 0.4 percent from this year’s amount but below the median
market forecast of 147 trillion yen in a Reuters poll conducted
earlier this month.

Japan managed to keep JGBs for new borrowing in fiscal
2011/12 at 44.3 trillion yen, the same amount planned for this
fiscal year. One of the key pledges by Prime Minister Naoto
Kan’s government has been to limit JGBs for new borrowing at or
below 44 trillion yen.

The five-year yield fell 1.5 basis points to 0.465 percent
(JP5YTN=JBTC: ) and the benchmark 10-year yield was up 1 basis
point at 1.160 percent (JP10YTN=JBTC: ).

The 30-year yield rose 2.5 basis points to 2.080 percent.

The 10-year/30-year yield spread widened by a basis point to
92 basis points.
(Editing by Chris Gallagher)

JGB yield curve steepens after BOJ op, issuance plan