JGBs dip; auction relief fades, focus on next sale

* 5-year auction draws ample demand

* But market seen on guard until Thursday’s 20-year tender

By Shinichi Saoshiro

TOKYO, Oct 19 (BestGrowthStock) – Japanese government bonds edged
lower on Tuesday, weighed down by wariness about an offer of
superlong bonds later in the week and unable to sustain a brief
bounce on relief over the day’s well-received five-year sale.

The five-year auction attracted ample demand following the
Bank of Japan’s easing earlier this month but the market’s focus
was on Thursday’s offering of 20-year JGBs, which will not
benefit as much from a low rate policy.

December 10-year futures (2JGBv1: ) fell 0.19 point to 143.69.

“Dealers unwound hedges taken out earlier for the auction.
The resulting selling was a little stronger than expected,” said
a trader at a domestic bank.

The 20-year sale is drawing attention after a solid 30-year
auction last week helped to stall a recent sharp steepening of
the curve.

JGB players are looking to the 20-year tender for further
confirmation that investors are warming to the superlongs again
after a steep selloff that followed the BOJ easing.

Market players attributed that selloff in large part to a
rise in volatility, which was spurred by supply concerns and made
domestic banks — key players in that part of the yield curve —
more cautious about buying.

There were also concerns that the BOJ may be moving towards a
reflationary policy.

The BOJ, under pressure to fight deflation and cope with a
strong yen, cut rates nearly to zero on Oct. 5 and said it would
launch a fund to buy assets ranging from commercial paper to
JGBs. [ID:nTOE69305D]

The 10-year/30-year yield spread widened to a 2-