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JGBs down as market sidesteps year-end settlements

TOKYO: Key June 10-year Japanese government bond (JGB) futures ended lower on Monday as the market hurried to place hedging sales, eyeing upcoming key economic data.

The market wanted to avoid fiscal year-end settlements on March 31, which could be affected by computer-related problems as it is the first book closing of the new millennium, traders said.

Any cash transaction conducted on Tuesday will be settled on March 31, so dealers and investors rushed to complete their transactions on Monday, they said.

Cash bonds are normally settled three days after trades (T+3).

The JGB market's downside bias also stemmed from speculation that Japanese industrial production data to be released on Wednesday and the Bank of Japan's "tankan" business sentiment survey on April 3 may turn out stronger than has been expected.

Some said the Nikkei average's afternoon rise above 20,000 weighed JGBs down somewhat.

June JGBs: ended at 130.32, down 0.30 point from 130.62 in Tokyo on Friday.

The yield on the 221st 10-year JGB was at 1.895 percent, after ending the Tokyo session at 1.870 percent on Friday. "There aren't really any new factors, but everyone hedged their positions today just in case as a lot of people will likely to shun trading from tomorrow," a city bank trader said.

Trade volume of the June futures amounted to 44,992 lots, recovering from scarce 16,654 lots on Friday.

The benchmark Nikkei average of 225 leading shares closed up 322.95 points at 20,281.03, a closing high since July 31, 1997.

Early in the morning, the market was again reminded about the flood of debt issuance by the government.

Financial daily Nihon Keizai Shimbun said on Monday that the amount of government debt to be issued in April-June will increase about 18 trillion yen from the current quarter to a record 84 trillion yen.

The impact on the market was relatively minor as the market has already priced this in, but "it just reminded us about a nightmare scenario that the market might get fed up with so many bonds," a trader at a brokerage said.

Following the report, Vice Finance Minister Nobuaki Usui said the ministry aims to raise the money needed in a way that will not greatly disrupt markets.

On Monday morning, the Ministry of Finance said it will offer 2.7 trillion yen in two-month financing bills (FBs) at its first auction of two-month FBs on April 3.

At present, FBs are limited to three-month maturities.

The additional issuance of two-month FBs is aimed at meeting massive payments due in April and June for the national pension system and for aid to local governments.

The ministry plans to hold two auctions of two-month FBs in April, followed by two more in June.

It also said in mid-March that it will increase the issuance of three-month financing bills to around four trillion yen per auction in April from the current 3.3 trillion yen.

In the medium-term bond market, prices came under slight downward pressure on selling to adjust positions ahead of the five-year JGB auction on Tuesday.

The Finance Ministry is scheduled to offer 900 billion yen worth of five-year bonds.

Traders expect to see a reasonably strong auction as the five-year bonds are expected to carry a coupon rate of 1.2 percent, up from 1.1 percent at the previous auction in February.Elsewhere, short-term interest rates stabilised after rising steadily last week, money traders said.

The one-week call money rate covering March 31 was offered around 0.20 percent, but found no buyers. It was traded at 0.43 percent on Friday.

The overnight call rate, meanwhile, was hovering around 0.02 percent, unchanged from on Friday's weighted average.

Money brokers estimated that the BOJ left a projected net surplus of 1.5 trillion yen after regular operation.-Reuters