JGBs lower but bargain-hunting trims losses

* Futures trim most early loss induced by weak Treasuries

* Bargain hunters bolder but US bonds still eyed with caution

* Market thinner ahead of year-end, moves seen exaggerated

By Shinichi Saoshiro

TOKYO, Dec 16 (BestGrowthStock) – Japanese government bonds fell on
Thursday after bargain hunters helped the market retrace much of
its earlier losses sustained in response to a continuing slide in
U.S. Treasuries.

The bargain-hunting showed that investors were becoming less
hesitant about picking up JGBs on price dips, although market
players said the turbulence in Treasuries would have to settle
before bonds could launch a sustained recovery from their recent
tumble.

“Bond investors are picking up sizable bargains, but yields
are likely to drift higher in the longer term until Treasuries
regain their footing,” said Hidenori Suezawa, chief strategist at
Nikko Cordial Securities.

Thinner market conditions, a result of many participants
scaling down their transactions ahead of the year-end, were also
expected to keep price moves choppy.

“It’s too early to say the market is finally consolidating.
We were saying that a week ago but we’ve been given no respite
due to turbulence in Treasuries,” said a trader at a European
brokerage, adding that the two- and five-year JGBs looked
attractive given the Bank of Japan’s easy policy but that few
were willing to buy in earnest while the U.S. market remained
volatile.

“The market is thin in typical year-end fashion. We may have
to wait until liquidity returns next year for the market to
really consolidate.”

March 10-year futures (2JGBv1: ) were down 0.04 point at 138.91
after going as low as 138.52, with purchases in long-end cash
JGBs prompting short-covering, market players said.

Domestic banks and publicly affiliated funds were cited among
the buyers of long-end JGBs.

The five-year yield (JP5YTN=JBTC: ) was 1 basis point higher at
0.540 percent following a rise to 0.560 percent.

The 10-year yield (JP10YTN=JBTC: ) was up 1.5 basis points at
1.270 percent after going as high as 1.295 percent to match a
seven-month high hit on Wednesday.

The 20-year yield (JP20YTN=JBTC: ) rose 2 basis points to 2.060
percent.

Treasuries have been the JGB market’s main driver this week,
in part because their recent sharp plunge has forced domestic
investors such as banks to sell JGBs to cover losses in their
foreign bond holdings.

The Ministry of Finance’s offer to sell extra amounts of 10-
and 20-year bonds already in circulation attracted sufficient
demand despite recent volatility, with the bid-to-cover ratio at
the 300 billion yen ($3.56 billion) sale holding at 3.08 from
3.36 at a similar sale last month.

A two-year auction scheduled on Dec. 22 is the last remaining
JGB offering of the year.

The two-year yield’s climb to a 12-