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JGBs end firmer on active buying in 20-yr sector

TOKYO: Japanese government bonds (JGB) were firmer on Thursday, triggered by strong buying in 20-year bonds.

In an otherwise lacklustre session, 20-year JGBs surged on swaps-related transactions and sporadic buying from Japanese investors.

"We saw strong buying in the 20-year zone in tandem with strong buying of 20-year yen swaps," a fund manager at a major city bank said.

The yield on the 45th 20-year bond fell to 2.245 percent, down from on Wednesday's close of 2.330 percent.

Buying in the 20-years also helped the 10-year bond, with the yield on the 219th on March 10-year bond slipping below 1.8 percent in late trade.

"There's been quite a bit of flattening at the long end, while the rest of the curve remains pretty much unchanged," said a trader at a trust bank.

The yield on the 219th on March bond was 1.775 percent, down from on Wednesday's close of 1.820 percent.

June JGB futures contract: closed up 0.31 point at 131.23."There were no fundamental factors prompting the buying," a trader at a city bank said.

Some said buying of 20-year swaps may have been related to upcoming launches of global yen bond issuances.

Government-affiliated financial institutions were detected buying the 10-year sector, which accelerated the buying trend, traders said.

With the curve flattening rapidly at the long end, traders said some players may have been unwinding short-basis trades a short cash position offset by a long corresponding futures contract.

But activity from most Japanese investors remained dull, as they refrained from building large positions before the close of the fiscal year on March 31.

"As long as there are no fresh incentives, no one will want to move their portfolios actively before the March book-closing," a trader at a city bank said.

Some also said index-based fund managers were continuing to adjust their portfolios as durations had increased marginally.

"There is some portfolio adjustment going on based on index duration changes...but the impact on the market should be minimal," the fund manager said.

The September TIBOR-based euroyen futures contract was at 99.720, unchanged from on Wednesday's day-session settlement.

The Bank of Japan (BOJ) reduced the projected daily net surplus in the money market to 6.0 trillion yen at its operation on Thursday from 9.2 trillion yen the previous day.

The central bank is gradually cutting down the net surplus in the market as short-term interest rates have stayed calm after extra fund-raising to cover possible leap-year computer glitches subsided, money traders said.

The key overnight call rate was mainly traded at 0.02 percent, unchanged from on Wednesday's weighted average.-Reuters