JGBs slip ahead of 5-yr sale; superlongs defy trend

* Midterm JGBs hit by selling before Thursday’s 5-year sale

* JGBs also weighed down as Nikkei’s fall limited

* 40-year sale well received, curve flattens slightly

By Shinichi Saoshiro

TOKYO, Nov 9 (BestGrowthStock) – Japanese government bonds slipped on
Tuesday as players sold to make room for an upcoming five-year
sale and as the Nikkei’s losses were limited in the face of
profit-taking after days of sharp gains.

The yield curve flattened as superlongs bucked the trend and
outperformed, drawing some impetus from a well-received 40-year
JGB offering.

“In the longer run steepening pressure is likely to persist.
But the recent steepening looked overdone and there is room for
flattening in the short run,” said Katsutoshi Inadome, a
fixed-income strategist at Mitsubishi UFJ Securities.

Japan’s Ministry of Finance offered 300 billion yen ($3.7
billion) of 40-year on Tuesday and the bid-to-cover ratio, a
gauge of demand at auctions, climbed to 4.15 from 3.75 at the
previous sale in August and was the highest since February 2009.
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Market players said the 40-years attracted interest from
investors like life insurers wanting assets to match their long
term liabilities.

“Investor demand was expected to be decent and the auction
was in line with such forecasts,” said Keiko Onogi, senior JGB
strategist at Daiwa Securities Capital Markets.

“But that does not mean it will put a halt to the recent
steepening.”

Onogi said the U.S. Treasury curve’s recent steepening would
have to halt if the JGB curve is to begin flattening in earnest
again.

The 10-year/30-year yield spread tightened to 103 basis
points but remained within distance of a 2-