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JGB futures pare losses after strong 4-yr auction

TOKYO: June 10-year Japanese government bond futures bounced from their intraday lows to end slightly easier on Tuesday, supported by strong results at a four-year JGB auction.

Traders said the relatively small issued volume of 500 billion yen and an attractive coupon rate of 1.0 percent stirred investor interest, despite the medium-term sector's vulnerability to concerns about an end to the Bank of Japan's zero-rate policy.

"The mid-section of the yield curve has been weak recently because that's the sector that will be affected most if the BOJ scraps its zero interest-rate policy in the near term," said a trust bank dealer.

Tuesday's auction results, however, were not impressive enough to keep that part of the yield curve from weakening further, given the small amount of bonds issued, traders said.

The June JGB futures contract 0 JGB: dipped to an intraday low of 131.49 early in the afternoon but subsequently rebounded to end at 131.80, down 0.09 from Monday's close. Turnover was a moderate 39,046 lots.

The yield on the 221st 10-year JGB stood at 1.750 percent, up modestly from 1.735 percent late on Monday.

In morning trade, JGBs slid on comments by U.S. investment adviser Richard Medley, who was quoted by Jiji news agency as saying there were signs of a recovery in the Japanese economy and the Bank of Japan may scrap its zero interest-rate policy in July or August -- earlier than market expectations.

Players were also discouraged in early afternoon trade as Tokyo share prices recovered slightly, while large-lot selling was detected in cash JGBs.

The 46th 20-year JGB, which has rallied since it began trading last week, retreated late in the session from its morning highs due to profit-taking by investors, traders said.

The yield on the 46th 20-year JGB stood at 2.080 percent, steady with its late Monday levels, after falling as low as 2.060 percent early in the session. Traders said that, if the yield of the 46th 20-year JGB drops below 2.00 percent, the market may be emboldened to push the yield of the 221st 10-year JGB below 1.7 percent, a level which Finance Minister Kiichi Miyazawa called "abnormal" in early February.-Reuters