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JGB futures slide, 220th JGB yield hits 1.9%

TOKYO: March 10-year Japanese government bond futures (JGBs) fell sharply on Tuesday, while the yield on the benchmark 10-year government bond rose to 1.9 percent, a 2-month high.

Traders said they were unsure what caused the sudden fall in March futures, which was recovering gradually until mid-afternoon.

"It is difficult to pinpoint a single reason behind the fall, but there had been talk overseas players were unwinding JGB positions," said a Japanese city bank dealer.

March 10-year JGB futures:, which rose as high as 132.23, closed at 131.40, down 0.75 from Monday.

The benchmark 220th 10-year JGB yielded 1.900 percent, the highest level for a most-recently auctioned 10-year JGB since 1.915 percent on November 25.

The benchmark bond yielded 1.850 percent late on Monday.

Fluctuations in the cash market were relatively subdued, but some traders said life insurers may have been selling 20-year bonds.Dealers said foreign financial institutions, which may have been hurt by last week's plunge in long-term yields in the US Treasury market, were seen unwinding JGB positions.

The yen's fall on Tuesday morning to a five-month low of 109.32 yen against the dollar also prompted overseas operators to sell Japanese bonds, and repatriate the proceeds to cover recent losses on US Treasuries, they said.

Japanese life insurers were detected selling 20-year bonds, possibly to raise cash for an auction on Wednesday by the Life Insurance Policyholders Protection Corp of Japan. The corporation plans to auction 350 billion yen worth of nine-year loans.

The bond market was unaffected by familiar comments by ex-Bank of Japan Deputy Governor Toshihiko Fukui, who said he thought the central bank's year-old policy of keeping short-term interest rates virtually at zero would stay in place for now.

Analysts said the JGB market was more concerned with concrete economic data, after top Japanese officials moved to soothe market concerns about the country's apparent slip back into recession in the last half of 1999.

Economic Planning Minister Taichi Sakaiya, who had rattled the markets with comments on Sunday that Japan's gross domestic product probably contracted for a second quarter in a row during the October-December quarter, insisted that Japan remains on a recovery path.

"The decline in October-to-December is due to a temporary fall in consumer spending in December," he told a news conference on Tuesday.

The Management and Coordination Agency reported on Tuesday that Japanese household spending fell a real 4.0 percent in December from a year earlier, while the seasonally adjusted propensity to consume index for wage earners fell to 71.8 percent in December from 72.5 percent the previous month.

Consumer spending supports 60 percent of the economy, and its weakness in the face of high unemployment, falling wages and ongoing corporate restructuring has aroused concern over whether the economy can attain a self-sustaining recovery.

Separately, the BOJ reported that Japanese bank lending fell 6.0 percent in January from a year earlier.

The Economic Planning Agency will release its forecast for January-March machinery orders at 2 p.m. on Thursday.

Traders said the bond market is nervous about chances for a recovery in capital expenditure going forward, which could encourage the BOJ to end its zero interest rate policy earlier than expected, they said.

An auction of 2.7 trillion yen of three-month financing bills on Tuesday produced a lowest accepted price of 99.986, with 8.6058 percent of the bids accepted at that price, the Finance Ministry said.

The BOJ left the money market with a fund surplus of 1.0 trillion yen operation, unchanged from Monday's levels.-Reuters