JGBs fall; lacklustre 30-yr sale hits superlongs

* Yield curve steepens after lacklustre 30-yr auction

* Demand limited in month of heavy superlong supply

* 30-year yield climbs to 6-month high

* Upcoming bond redemptions eyed to curb superlong yields

By Shinichi Saoshiro

TOKYO, Dec 7 (BestGrowthStock) – Japanese government bonds fell on
Tuesday with a lacklustre 30-year sale showing investors are in
no hurry to buy debt as they face another superlong auction next
week in a month of heavy supply for the far end of the yield
curve.

Market players also expect superlongs to bear the brunt of
any issuance increase for the next fiscal year starting in
April.

“It appears some real money investors were swayed by the
idea of waiting and buying the 30 years until the yield rises to
2.2 percent,” said a trader at a domestic bank.

The No. 33 30-year yield (JP30YTN=JBTC: ) gained 6 basis
points to a six-month high of 2.190 percent.

The yield has climbed more than 40 basis points from a
near-term trough hit in early October, with investor bargain
hunting at each threshold level stalling, but not stopping, the
rise.

JGB yields have been climbing steadily since October, pushed
higher by factors including weaker U.S. Treasuries and an ebb in
expectations for further easing by the Bank of Japan amid the
Nikkei’s recovery from lows and the yen’s retreat.

The bid-to-cover ratio, a gauge of demand, at Tuesday’s 600
billion yen ($7.3 billion) 30-year JGB auction fell to 2.95 from
5.40 at the previous sale in October. The offering was a second
reopening of the 0.2 percent No. 33 issue first sold in
September.

The auction tail, the difference between the lowest and
accepted price and another demand gauge, widened to 0.26 from
0.10. A wider tail suggests there is less consensus about where
the new bonds should be priced and is regarded as a sign of weak
demand.

“Yields are likely to remain elevated with another superlong
auction next week,” said RuiXue Xu, a rates strategist at RBS
Securities.

“Dealers are not in a position to take on too much risk as
the year’s end approaches, but demand from investors wanting to
reinvest money from redemptions should curb the rise in yields
after the 20-yr sale next Tuesday.”

Analysts estimate about 10 trillion yen of JGBs will mature
later in the month, which investors could put back into
government debt.

December 10-year futures (2JGBv1: ) lost 0.27 point to 141.21
after rising 0.60 point the previous day following last week’s
weaker-than-expected U.S. jobs data.

The benchmark 10-year yield (JP10YTN=JBTC: ) rose 1.5 basis
points to 1.170 percent after declining 5 basis points the day
before.

The 10-year/30-year yield spread widened by 5 basis points
to 102 basis points.
(Editing by Joseph Radford)

JGBs fall; lacklustre 30-yr sale hits superlongs