JGBs slip on selling ahead of 10-year auction

* Long-end JGBs sag, room made for upcoming 10-year sale

* Weakening of U.S. Treasuries also cools sentiment

* US data, domestic politics eyed for impetus next year

By Shinichi Saoshiro

TOKYO, Dec 29 (BestGrowthStock) – Japanese government bonds fell on
Wednesday as dealers sold to make room for a 10-year auction next
week, with a slide in U.S. Treasuries also cooling sentiment.

Lack of liquidity resulting from reduced participation
towards the year-end caused volatility in price moves, with the
market eyeing Japan’s political situation and overseas data for
some impetus once trading regains momentum next year.

“Treasuries are dictating moves in JGBs as immediate domestic
incentives have dried up,” said Koichi Ono, a senior strategist
at Daiwa Securities Capital Markets.

“In the new year the market will be able to draw on
fundamentals through U.S. data like the employment numbers. On
the domestic side, how the muddled political situation plays out
could also become an incentive.”

Bickering in the ruling Democratic Party of Japan (DPJ) has
distracted the government from addressing tough policy decisions
and complicated prospects for passing laws in a divided
parliament, including bills needed to implement the budget for
the fiscal year from April 1. [ID:nTOE6BR02J]

Analysts say a worsening of the political confusion could
become a double-edged sword — a supportive factor for JGBs if it
darkens prospects for the economy but a negative for the market
if it throws doubt on the government’s ability to manage its
finances.

March 10-year futures (2JGBv1: ) shed 0.16 point to 140.05.

U.S. Treasuries prices fell broadly on Tuesday after an
auction of five-year notes drew dismal demand. [ID:nN28201934]

The near-term focus was on how the Treasury market would
handle a seven-year note auction later on Wednesday. The outcome
is expected to dictate direction for JGBs on Thursday, the last
trading day of the year.

Treasuries have been one of the main sources of impetus for
JGBs this month. A tumble in U.S. bonds earlier in the month hit
the market hard by forcing domestic investors to sell JGBs to
make up for losses in their Treasury holdings.

JGB futures were on track to gain about 0.30 point on the
year. They hit the year’s low of 138.06 in April, when JGBs were
on the back foot amid the Nikkei’s rise to an 18-month high.

Early in October futures rose to the year’s peak of 144.31,
which was also a seven-year high, after the Bank of Japan eased
monetary policy in the wake of the yen’s rise to a 15-year high
against the dollar.

The benchmark 10-year yield (JP10YTN=JBTC: ) rose 3 basis
points to 1.160 percent, on course for a roughly 10 basis point
decline on the year.

The 30-year yield (JP30YTN=JBTC: ) climbed 1 basis point to
2.055 percent.
(Editing by Michael Watson)

JGBs slip on selling ahead of 10-year auction