JGBs trim losses as yen bounces despite BOJ easing

* JGBs hit early by Nikkei jump, lower Treasuries

* But bulk of losses trimmed after yen bounces after easing

* Pension funds, life insurers bargain hunt at long-end

* Futures volume on track to be highest since Oct ’08

By Shinichi Saoshiro

TOKYO, Aug 30 (BestGrowthStock) – Japanese government bonds trimmed
the bulk of losses made earlier on Monday, on a jump in Tokyo
shares and weaker U.S. Treasuries, with the yen bouncing back in
disappointment as markets questioned whether the latest easing by
the Bank of Japan would help weaken the currency.

The BOJ bowed to government pressure and eased after an
emergency meeting on Monday to try to curb a rise in the yen that
is threatening a fragile economic recovery. [ID:nTOE67S01V]

September 10-year futures (2JGBv1: ) declined 0.12 point to
142.43, pulling back sharply from an intraday low of 141.60.
Traded volume was on track to reach Friday’s 48,000 lots, which
was the highest since October 2008.

The BOJ increased the volume of money available to banks
under its fixed-rate fund supply operation to 30 trillion yen
($351 billion) from 20 trillion yen. It also put in place a
six-month fund operation in addition to the three-month loan
programme already in place.

The yen’s bounce after the central bank’s announcement took
the wind out of an earlier rally in the Nikkei, providing some
reprieve for debt.

Moreover shorter-dated JGBs nearly trimmed all their earlier
losses after the central bank reinforced its already loose
monetary easing stance.

“The combination of an increased volume in the fund supply
operation and an extented period for the loan programme will have
a slightly surprising accommodative impact,” said Ayako Sera,
market strategist at Sumitomo Trust and Banking.

The five-year yield (JP5YTN=JBTC: ) was down 0.5 basis point at
0.285 percent after rising to 0.310 percent.

The benchmark 10-year yield rose 3.5 basis points to 1.035
percent after hitting a seven-week high of 1.105 percent.

The 10-year/20-year yield spread tightened back to around 70
basis points after widening above 76 basis points to a two-month
high, as investors such as life insurers and pension funds hunted
for bargains in superlongs after a big slide in the maturities on
Friday and earlier on Monday.

The 20-year yield (JP20YTN=JBTC: ) was up 5 basis points at
1.745 percent after hitting 1.835 percent, a seven-week high. It
had declined to a seven-year low of 1.510 percent last week.

Still, it may be difficult for the JGB market to resume the
kind of rally that ironed the yield curve flat last week.

“The market is likely to remain choppy this week even if
supply concerns happen to recede. Sellers are out in force and it
would be difficult to reverse it for now,” said a dealer at a
foreign securities house.

Superlongs had enjoyed a bull run earlier this month, with
the 20-year and 30-year yields plunging to seven-year lows, on
massive purchases from investors such as banks.

But the maturities began retracing the rally as a trickle of
investor profit taking for the fiscal half-end progressed into a
flood, partially helped by news last week that ruling party
heavyweight Ichiro Ozawa would challenge the prime minister in a
party leadership vote next month hurt the outlook for fiscal
austerity.

Tokyo’s Nikkei had gained 2 percent after rising as much as
3.2 percent (.N225: ). [.T]
(Editing by Joseph Radford)

JGBs trim losses as yen bounces despite BOJ easing