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JGBs slip on auction jitters, MOF remarks on rates

TOKYO: June 10-year Japanese government bond futures closed lower on Thursday, amid worries that an auction of 10-year JGBs scheduled for next Wednesday might meet lacklustre investor demand. JGBs also briefly extended losses in the afternoon on comments by Finance Minister Kiichi Miyazawa that Japan's extremely low long-term interest rates cannot last indefinitely.

The June contract: ended down 0.31 point at 130.70. Turnover was 47,582 lots. "Miyazawa's comments hurt market sentiment but they did not come as a big surprise, since he had made similar comments before," said a trader at a Japanese brokerage.

Miyazawa told an Upper House panel that a rise in long-term interest rates would become unavoidable when private-sector demand picks up with a rebound in corporate capital spending.

The June contract briefly dropped as low as 130.64 after Miyazawa's remarks.

The yield of the key March 10-year 219th JGB was at 1.840 percent, up from 1.810 percent late on Wednesday. "We are worried that next week's auction might not go very well, as investors are not so keen to buy 10-year JGBs," said a trader at another Japanese brokerage.

Traders said the introduction of mark-to-market accounting standards in April was expected to discourage investors from buying new 10-year JGBs aggressively, as the new accounting practice is expected to make them more sensitive to bond investment risks.

The longer end of the yield curve is normally more risky for investors due to the greater time duration.

A rise in Tokyo share prices also weighed on JGBs, traders said. The Nikkei 225 average ended up 174.63 points or 0.92 percent at 19,253.23.

Elsewhere, the key September three-month euroyen futures settled at 99.665, down from 99.690 on Wednesday.

Euroyen futures' weakness reflected a rise in deposit rates stemming from stronger demand for yen funds among foreign banks ahead of Japan's business year-end on March 31.

One-month euroyen deposit rates stood around 0.12 percent on Thursday, up from 0.08 percent early last week.

The Bank of Japan on Thursday began announcing projections of daily increases or decreases in its current account balances, which are a broader base of money conditions that the projections of net reserve excesses and shortfalls it previously issued.

The BOJ said projected daily current account balance at the central bank was expected to fall 400 billion yen on Thursday.

A BOJ official said the bank allowed the current account balances to decline because market conditions were calmer compared to the previous day.

He added that the decision to allow the current account balances to decline did not indicate any change in monetary policy. -Reuters