JGBs down on Nikkei bounce; 10-yr sale well-received

* JGBs sag on Nikkei’s 1.4 pct rise, weaker Treasuries

* Market draws comfort from solid demand at 10-yr debt sale

* Minister urges Japan Post Bank to diversify beyond JGBs

By Shinichi Saoshiro

TOKYO, Feb 2 (BestGrowthStock) – Japanese government bond futures
slipped further on Tuesday from a one-month peak hit last week,
as stocks rose and U.S. Treasuries fell after better than
expected U.S. manufacturing data.

Futures, however, trimmed some losses after a well-received
10-year debt auction brought some relief to the market by showing
that investors were willing to tip toe down the curve in search
of higher yields.

The bid-to-cover ratio, a gauge of demand, rose to 3.62 in
the auction of 2.2 trillion yen ($24 billion) of 10-year bonds
with a 1.3 percent coupon. It was the highest ratio reading since
the May 2007 tender. [ID:nMOFBB5004] (TENDER01: )

“The auction went quite smoothly. One reason for the good
results is that 10-year notes looked cheap compared to other
maturities, attracting demand from investors such as actively
managed pension funds.”

Market players said demand also came from some domestic banks
looking for higher returns, with yields of short to midterm JGBs,
their traditional domains, pinned down near four-year lows.

“The second supportive factor is the weakness in the JGB
market in the past two days that had pushed up the benchmark
10-year yield to the 1.350 percent level where many people were
hoping to buy,” Inadome at Mitsubishi UFJ Securities said.

The 10-year yield (JP10YTN=JBTC: ) climbed 1.5 basis points to
1.345 percent after hitting 1.350 percent, its highest in three
weeks.

The market was little affected by reported comments from
banking minister Shizuka Kamei, who said Japan Post should buy
more corporate bonds and U.S. Treasuries. [ID:nTOE61100N]

Banking minister Kamei told the Financial Times in an
interview that ran on Tuesday the government-owned financial
conglomerate Japan Post should invest more in corporate bonds and
U.S. Treasuries, rather than Japanese government bonds.

Many analysts doubt Japan Post, which holds more than
three-quarters of its total assets of about 300 trillion yen
($3.3 trillion) in JGBs, can sharply cut its JGB holdings because
of concern that its selling could destabilise the market.

They also say the bank, despite its size, has few financial
experts to make more active investments any time soon.

Although Japan Post has attempted to expand its lending since
the government began a 10-year privatisation process in 2007, the
effort fell through and its government bond buying has increased.

March futures slid 0.29 point to 139.11 (2JGBv1: ), pulling
back from a one-month high of 139.71 reached last week.

Tokyo’s Nikkei average (.N225: ) was up 1.4 percent, boosted by
a rally on Wall Street the previous day. [.T]

The two-year yield edged up 0.5 basis point to 0.160 percent
(JP2YTN=JBTC: ), while the 20-year yield climbed 2 basis points to
2.145 percent (JP20YTN=JBTC: ).

Treasuries fell on Monday after strong manufacturing data
renew inflation jitters. [US/]

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(Additional reporting by Rika Otsuka; Editing by Hugh Lawson)

JGBs down on Nikkei bounce; 10-yr sale well-received