JGBs rise on investors’ year-end position squaring

* JGBs draw early impetus from a bounce in US Treasuries

* Players scramble to square positions before year’s end

* Investors extend durations, match assets with liabilities

By Shinichi Saoshiro

TOKYO, Dec 28 (BestGrowthStock) – Japanese government bonds gained on
Tuesday, with futures climbing to a three-week high, as investors
bought across the board to square their positions before the end
of the year.

After drawing an earlier lift from the previous day’s gains
in U.S. Treasuries, March 10-year futures (2JGBv1: ) were up 0.36
point at 140.21 after going as high as 140.28, their highest
since early December.

Participants said some relief that the worst of the recent
JGB selling may be over helped to nudge down yields.

“There were the usual month-end duration extensions lifting
longer-dated JGBs, in addition to some investors scrambling to
buy superlong to match their assets with their liabilities before
the year ends,” said a fund manager at a domestic asset
management firm.

Investors like life insurers commonly extend the duration of
their fixed-income assets to match the duration of their
liabilities.

“Lessening prospects of yields spiking up again in the near
term appears to be driving the buying. Participants want to
unwind hedges and tie up loose ends into the new year.”

The five-year yield (JP5YTN=JBTC: ) slipped 2 basis points to
0.445 percent.

The benchmark 10-year yield (JP10YTN=JBTC: ) dropped 2.5 basis
points to 1.135 percent, pulling further away from a seven-month
high of 1.295 percent struck two weeks ago when selling induced
by a tumble in Treasuries reached its peak.

The 30-year yield (JP30YTN=JBTC: ) declined 4.5 basis points to
2.040 percent.

The yield curve flattened, with the 10-year/30-year yield
spread tightening by a basis point to 90.5 basis points, its
tightest since the start of this month.

Data released on Friday showed that Japan remained stuck in
deflation, with core consumer prices falling 0.5 percent in
November from a year earlier, down for the 21st straight month.
[ID:nTKG007013]

On the other hand, industrial output marked the first rise in
six months, separate data showed, in a sign companies were
increasing production on expectations for a pickup in global
demand early next year. [ID:nTOE6BQ076]

“The industrial production number was good but the market
took it in stride, as it has been doing with most domestic
indicators recently,” said Shinji Nomura, chief fixed-income
strategist at Nikko Cordial Securities.

Nomura added that overseas data like the U.S. employment
numbers were likely to keep having a bigger impact on JGBs
compared to domestic indicators.
(Editing by Chris Gallagher)

JGBs rise on investors’ year-end position squaring