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JGBs mostly higher in wake of stock tumble

TOKYO: Japanese government bond (JGB) prices were mostly higher in late Tokyo trade on Wednesday as local stocks slid in the wake of broad losses on Wall Street.

But JGB price gains were limited as stock prices pared some losses in afternoon trade. Underlying bond oversupply worries ahead of a key 10-year JGB auction next week also weighed on the market.

The key March JGB futures contract closed up 0.40 point at 132.45, after hitting a high of 132.63. Turnover was also robust at 31,443 lots, the highest level since mid-December.

In contrast, cash bonds remained overall lacklustre amid a dearth of investor activity, with the key 218th 10-year bond untraded. But the medium-sector firmed in line with gains in futures, traders said.

The benchmark Nikkei stock average ended down more than two percent after shedding as much as four percent at one point. It closed down 460,31 points, or 2.42 percent, at 18,542.55.

But the market failed to garner much direction from the rebound in prices. "The market rapidly recovered from Tuesday's losses. But there's no clear direction so traders are focusing on the 10-year auction next week," a trader at a city bank said.

The Ministry of Finance said on Wednesday that it will offer 1.4 trillion yen worth of 10-year JGBs to be auctioned on January 11.

The 10-year auction will kick off a slew of bond auctions this month to finance the government's expansive fiscal policy to bolster the economy.

Speculation that the BOJ may lift its current zero-interest rate policy, spurred by comments from BOJ Governor Masaru Hayami and amid signs of economic recovery, also continued to weigh on the market.

On the other hand, the market remained supported by investor-led demand for bonds. "There is steady demand, including from regional investors, for JGBs on dips," an analyst at a major Japanese brokerage said.

An auction of 2.0 trillion yen worth of 3-month financing bills (FB) on Wednesday produced a lowest accepted price of 99.981, with 88.7621 percent of the bids accepted at that price, the MOF said.

Separately, the ministry said it will offer 2.0 trillion yen in FBs at its next auction on January 7. But the MOF said it would raise the amount to 2.7 trillion yen in FBs to be auctioned on January 12, 19 and 26.

The TIBOR-based euroyen futures contract also rose on the back of weak share prices. The key September contract was at 99.595, up from Tuesday's day-session settlement of 99.570.

Meanwhile, the Bank of Japan continued to absorb excess liquidity which was poured into the money market to pre-empt year-end rises in short-term interest rates on possible Y2K-related concerns.

On Wednesday, the central bank reduced the projected net surplus in the money market to 23.2 trillion yen, down from 23.9 trillion yen on Tuesday. The amount was within market expectations.

The key overnight call was mainly traded at 0.02 percent on Wednesday, down from Tuesday's weighted average of 0.03 percent.

But the market failed to garner much direction from the rebound in prices. "The market rapidly recovered from Tuesday's losses. But there's no clear direction so traders are focusing on the 10-year auction next week," a trader at a city bank said.

The Ministry of Finance said on Wednesday that it will offer 1.4 trillion yen worth of 10-year JGBs to be auctioned on January 11.

The 10-year auction will kick off a slew of bond auctions this month to finance the government's expansive fiscal policy to bolster the economy.

Speculation that the BOJ may lift its current zero-interest rate policy, spurred by comments from BOJ Governor Masaru Hayami and amid signs of economic recovery, also continued to weigh on the market.

On the other hand, the market remained supported by investor-led demand for bonds. "There is steady demand, including from regional investors, for JGBs on dips," an analyst at a major Japanese brokerage said.

An auction of 2.0 trillion yen worth of 3-month financing bills (FB) on Wednesday produced a lowest accepted price of 99.981, with 88.7621 percent of the bids accepted at that price, the MOF said.

Separately, the ministry said it will offer 2.0 trillion yen in FBs at its next auction on January 7. But the MOF said it would raise the amount to 2.7 trillion yen in FBs to be auctioned on January 12, 19 and 26.

The TIBOR-based euroyen futures contract also rose on the back of weak share prices. The key September contract was at 99.595, up from Tuesday's day-session settlement of 99.570.

Meanwhile, the Bank of Japan continued to absorb excess liquidity which was poured into the money market to pre-empt year-end rises in short-term interest rates on possible Y2K-related concerns.

On Wednesday, the central bank reduced the projected net surplus in the money market to 23.2 trillion yen, down from 23.9 trillion yen on Tuesday. The amount was within market expectations.

The key overnight call was mainly traded at 0.02 percent on Wednesday, down from Tuesday's weighted average of 0.03 percent.-Reuters