JGBs climb after strong 20-yr sale, futures hit 10-wk high

* JGB 20-year sale exceeds expectations

* Speculation that demand helped by foreign investors

* Japan life insurers and foreigners big JGB buyers – JSDA

* Worries about EU debt crisis help increase bond demand

By Satomi Noguchi and Shinichi Saoshiro

TOKYO, May 20 (BestGrowthStock) – Japanese government bonds climbed
across the curve on Thursday after a 20-year sale drew
unexpectedly solid demand, with speculation that some appetite
may have come from foreign investors looking for respite from
turbulence in the euro zone.

JGB futures reached a 10-week high as Tokyo shares briefly
broke below a key psychological level.

The benchmark 10-year yield dipped near its over four-month
low hit earlier in the month after an exceptionally strong
auction of 20-year bonds inspired dealers to secure longer cash
bonds.

Analysts said good demand came from traditional buyers,
notably Japanese life insurers looking to match their assets with
their liabilities.

But some market players speculated that a large amount of
purchases may have come from big Japanese banks or foreign
investors wanting to diversify their assets out of the euro zone
due to the region’s deepening debt crisis.

Superlong JGBs surged after uncertainty grew about possible
overseas buyers of the 20-year bonds, prompting other investors
to purchase the maturity, pulling the 20-year yield down sharply
towards its five-month low hit earlier in the month.

“The market became nervous about not having bonds after being
unable to identify exactly who bought a large portion of today’s
20-year debt,” said a senior interest rate trader at a European
investment bank.

June 10-year JGB futures climbed as far as 140.32, their
highest since March 10, before ending the day’s session at 140.25
(2JGBv1: ), up 0.21 on the day.

Tokyo’s Nikkei stock average (.N225: ) shed 1.5 percent on
Thursday. The index declined below the psychologically key 10,000
mark at one point and helped late gains in JGB futures, traders
said. [.T]

The benchmark 10-year yield fell 3 basis points to 1.255
percent (JP10YTN=JBTC: ), a touch above 1.250 percent, the lowest
since December 22 hit earlier in the month.

The yield on the current No. 117 20-year yield sank 5.5 basis
points to 2.040 percent (JP20YTN=JBTC: ), towards its five-month
low of 2.020 percent hit on May 7.

LIFE INSURERS AND FOREIGNERS

The lowest price set at the 1.1 trillion ($12 billion)
auction of the reopened 20-year debt came a lot higher than
expected and matched the average accepted price, the first time
that has happened since the maturities were initially auctioned
in 1987, suggesting strong demand from dealers and investors.
[ID:nMOFET5005]

There was talk in the market about the possibility of a big
Japanese bank buying Thursday’s 20-year debt, but some questioned
whether investors would aggressively extend the duration
portfolios for the residing duration risk.

Still, analysts said the market had seen signs of strong
demand after it appeared foreign investors were big buyers of
JGBs last month together with Japan’s life insurers.

Japanese life and non-life insurers in April bought the most
superlong JGBs on records stretching back to 2004, data from
Japan Securities Dealers Association shows.

Life and non-life insurers bought a net 1.158 trillion yen
($12.63 billion) superlong JGBs in April, underscoring the recent
bullishness in the zone that saw the curve flatten the most since
December.

Data also showed foreign investors bought a net 1.357
trillion JGBs excluding short-term bills in April — the most
since August 2008 — with the bulk of their purchases in the
midterm sector.

Japan’s economy grew 1.2 percent in the January-March
quarter, marking its biggest expansion in three quarters, thanks
to robust exports to Asia and a stimulus-fuelled recovery in
consumption. [ID:nTOE6190A3]

But the JGB market took the data in stride amid concerns
about persisting deflation and the effect the fallout from the
euro zone’s sovereign debt crisis might have on the economy.

Investment Analysis

(Editing by Joseph Radford)

JGBs climb after strong 20-yr sale, futures hit 10-wk high