JGBs tick up on stocks, brace for 10-yr auction

* JGBs rise slightly on sharp fall in stocks

* Gains limited ahead of 10-year JGB sale

* Many market players expect decent demand at auction

* Reaction muted to data on JGB buying by China

By Hideyuki Sano

TOKYO, July 6 (BestGrowthStock) – Japanese government bonds edged up
on Tuesday as Tokyo shares fell to a seven month low but traders
were cautious about chasing prices too high before a 10-year debt
auction later in the day.

The market did not react to news that China has increased
purchases of JGBs so far this year as the country’s buying is
concentrated in short-term Treasury Discount Bills.

Data from Japan’s finance ministry showed China bought a net
517.7 billion yen ($5.9 billion) of T-bills in the first four
months of this year but only 23.4 billion yen of medium- to
long-term bonds. [ID:nTOE66501F]

The Ministry of Finance offered 2.2 trillion yen of bonds
maturing on June 20, 2020 with a coupon rate of 1.1 percent, in
line with market expectations but the lowest since bonds sold in
August 2003.

“I think today’s offering will be well-accepted as there
seems to be solid investor demand given what’s happening in
financial markets worldwide,” said Keiko Onogi, senior JGB
strategist at Daiwa Securities Capital Markets.

The results of the auction will be announced at 12:45 p.m.
(0345 GMT). Traders expect a lowest accepted price around 99.80.

They count on demand from many investors who have not bought
the amount in bonds they wanted in the market’s rally since last
month.

Worries about a double-dip recession in the United States and
hopes for fiscal reform by new Prime Minister Naoto Kan have
driven JGB yields out of their trading range for the last seven
years, forcing investors to rush back to the market.

A few market players think JGB yields have fallen too much
too fast.

But many market players believe current yield levels can be
justified given the worries about slower global growth that
fuelled “risk-off” trading in many asset markets in the past few
weeks.

September 10-year JGB futures rose 0.07 point to 141.64
(2JGBv1: ). Caution before the action kept market players from
bidding September futures up near a seven-year peak of 141.95 hit
last week.

The Nikkei share average (.N225: ) dropped 0.9 percent, sliding
below one support at a key retracement level.

The current 10-year JGB yield fell 0.5 basis point to 1.100
percent (JP10YTN=JBTC: ), off a 7-year low of 1.055 percent hit
last week.

There was slight steepening in the yield curve as 30-year
bonds were sold ahead of a 30-year government debt offer on
Thursday.

The 30-year yield rose 0.5 basis point to 1.850 percent.
(JP30YTN=JBTC: )

An upper house poll next Sunday is also on the radar of
market players, with support for Prime Minister Naoto Kan
slipping and media saying the country’s main ruling party could
fall short of a majority. [ID:nTOE66403S]

That could make it hard for Kan to press ahead with his
fiscal reform agenda.
(Reporting by Hideyuki Sano; Editing by Joseph Radford)

JGBs tick up on stocks, brace for 10-yr auction