JGBs slide as upbeat data saps post-auction demand

* Bullish ADP data saps investor interest in new 10-yr JGBs

* Auction well received but secondary market demand tepid

* Ample money market liquidity anchors short-end yields

By Shinichi Saoshiro

TOKYO, Jan 6 (BestGrowthStock) – Japanese government bonds fell
sharply on Thursday after robust economic data fanned higher
expectations for Friday’s U.S. payrolls report, sapping investor
demand for newly issued debt.

JGBs slipped early, taking cues from a sharp drop in U.S.
Treasuries and a rise in Tokyo’s Nikkei to an eight-month high
following a record jump in ADP private employment data in the
United States, considered a precursor to Friday’s jobs report.

Bonds extended losses after an offering of 10-year JGBs
generated decent short covering demand from dealers in the
primary market but failed to attract investors in the secondary
market.

“At a glance the auction results were good, but the outcome
was not backed up by real money investors,” said a trader at a
European securities house.

“Investors cut back the amount of bonds they wanted to buy
after the auction following the bullish ADP data, fearing that
Friday’s jobs numbers might be stronger than expected as well.”

March 10-year futures (2JGBv1: ) were down 0.79 point at 139.65
after going as low as 139.58.

Sellers of futures included dealers hedging the newly bought
10 years and foreign speculators unwinding long positions, market
players said.

The bid-to-cover ratio, a gauge of demand, at the 2.2
trillion yen ($26.4 billion) 10-year JGB auction rose to 2.99
from 2.41 at the previous offering in December. [ID:nMOFAF5005]

STEEPER CURVE

The JGB yield curve steepened on Thursday as longer-dated
maturities underperformed the short-end.

The two-year yield (JP2YTN=JBTC: ) rose 1.5 basis points to
0.185 percent, while the 10-year yield (JP10YTN=JBTC: ) was up 5.5
basis points at 1.210 percent, widening the two-year/10-year
yield spread to a three-week high of 102.5 basis points.

Short-end yields have been better anchored since the Bank of
Japan recently increased liquidity in the money market.

According to BOJ data the current account balance, the amount
of funds parked by banks at the central bank, averaged close to
20 trillion yen in December, the highest since 2006.

“The BOJ started boosting liquidity towards the end of last
month and money market rates are now being pinned down by a view
that it will continue to provide ample liquidity,” said a dealer
at a domestic bank.

The BOJ eased monetary policy in early October but some had
said money market rates remained elevated due to an initially
tepid increase in the current account balance.

The ADP Employer Services report released on Wednesday showed
U.S. private employers added 297,000 jobs in December, exceeding
market expectations for a gain of 100,000.

According to a Reuters poll economists revised up their
forecasts for Friday’s December non-farm payrolls to 175,000 from
the 140,000 expected before the ADP report was released.
[ID:nN05284674]
(Reporting by Shinichi Saoshiro; Editing by Joseph Radford)

JGBs slide as upbeat data saps post-auction demand