REFILE-JGBs fall as BOJ official’s comment saps rally

(Refiles to add word “saps” to headline)

* JGBs surge early as 5-year sale draws sufficient demand

* But tumble after BOJ official’s comment on yields

* Morimoto: long-term rate rise not a big negative for econ

* Benchmark 10-yr yield hits new 6-month high of 1.270 pct

By Shinichi Saoshiro

TOKYO, Dec 9 (BestGrowthStock) – Japanese government bonds fell on
Thursday, retracing an earlier rally, after comments from a Bank
of Japan official that the recent rise in long-term rates was not
having a big negative impact on the economy hit a raw nerve in a
market short on confidence.

BOJ policy board member Yoshihisa Morimoto said on Thursday
that the increase in long-term rates was mostly due to rate
tracing yield gains in the United States. [ID:nTKZ006681]

The benchmark 10-year JGB yield, which had fallen as low as
1.185 percent (JP10YTN=JBTC: ) after a five-year debt auction
attracted sufficient demand, shot up to 1.270 percent following
Morimoto’s comments, rising 3 basis points on the day to a
six-month high.

“The market was not expecting too much from Morimoto but it
reacted negatively to his comments, which suggested that the BOJ
is not poised to stop long-term rates from rising,” said Akito
Fukunaga, chief rates strategist at RBS Securities in Tokyo.

“JGBs are very sensitive to any bearish factors out there and
it will take time before the market regains confidence.”

In choppy trade that saw prices swing widely in both
directions, JGBs initially surged following the safe passage of a
2.4 trillion yen ($28.6 billion) five-year sale.

With a low bid-to-cover ratio and a relatively long tail —
both indicators of demand at an auction — the sale outcome was
not strong but players were relieved to see tell-tale signs of
domestic bank demand emerge as many had braced for the worst.

Participants said Treasuries were likely to continue leading
JGBs in the short term after a big tumble in U.S. bonds hurled
Japanese yields to multiple-month highs the previous day.

“A further retreat by Treasuries could again force Japanese
investors such as banks to make up for their losses in those
investments by selling JGBs,” said a trader at a European


Bank selling for such purposes has swerved to midterm JGBs
from long-end bonds and they may have to dig deeper in their
portfolios if they want to keep selling at a profit, the trader

March 10-year JGB futures, which took over the lead contract
role from December futures on Thursday, fell 0.08 point to 139.12
(2JGBv1: ) after rising as high as 139.97 when dealers lifted
hedges after the five-year tender.

The 20-year yield (JP20YTN=JBTC: ) climbed 3.5 basis points to
2.125 percent.

The No. 92 five-year yield (JP5YTN=JBTC: ) climbed 3 basis
points to 0.545 percent, an eight-month peak.

The lowest price of 99.64 at the five-year auction roughly
matched expectations of 99.65, indicating sufficient demand. The
bid-to-cover ratio, another demand gauge, fell to 2.78 from 3.54
at the previous sale in November, underscoring some degree of
caution by dealers towards the new paper.

Tokyo’s Nikkei (.N225: ) rose 0.5 percent after advancing to a
fresh seven-month peak on a weaker yen. [.T]
(Editing by Joseph Radford)

REFILE-JGBs fall as BOJ official’s comment saps rally