JGBs pare losses, gain on steady 10-yr auction

* Pare losses on stronger-than-expected 10-year sale

* Auction draws short covering demand, higher coupon a plus

* 10-year yield touches 5-wk high, monetary policy in focus

By Shinichi Saoshiro

TOKYO, Nov 2 (BestGrowthStock) – Japanese government bonds edged
higher on Tuesday, paring earlier losses after a sale of 10-year
debt drew stronger demand than expected.

The auction result came as a relief to the market as
participants had expected investor caution towards closely-eyed
events later in the week to limit demand for the 10 years.

The tender drew ample demand from buyers including dealers
looking to cover short positions, market players said, adding
that a higher coupon helped boost appetite.

“The week’s upcoming events were a source of concern before
the auction but the results show that some investors were willing
to price in such events to buy the paper,” said Shinji Ebihara, a
fixed-income strategist at Credit Suisse Securities.

Japan’s Ministry of Finance offered 2.2 trillion yen ($27.3
billion) of 10-year JGBs, raising the coupon from 0.8 percent at
the last sale to 1 percent for a reopening of the No. 310 issue
sold in September.

The auction bid-to-cover ratio, a gauge of demand, rose to
3.91 from 2.85 at the previous sale and was significantly higher
than 3.14, the average from the past 12 sales. [ID:nMOFKB5004]

The yield curve flattened as superlongs were bought on
auction relief and as some buyers including domestic banks were
tempted by the wide spreads, market players said.

“There are lingering expectations towards the Federal Reserve
buying a good portion of longer-dated debt when it eases, and
this is helping the JGB yield curve’s slight flattening,” said
Takeo Okuhara, a fund manager at Daiwa SB Investments.

The 10-year yield (JP10YTN=JBTC: ) fell 1 basis point to 0.935
percent after touching a five-week high of 0.975 percent on
wariness prior to the auction.

The 20-year yield (JP20YTN=JBTC: ) dropped 2 basis points to
1.795 percent. The 10-year/20-year spread tightened to 86 basis
points, pulling further away from a 2-