(Jan 8): Japan’s bond futures held onto gains after the lowest price at an auction of 30-year debt was slightly above forecasts, even though the bid-to-cover ratio showed lacklustre demand.
The lowest price at the Ministry of Finance’s bond sale on Thursday was 99.15, compared with 99.10 in a Bloomberg survey. While the bid-to-cover ratio was 3.14, lower than the 12-month average of 3.405, some analysts said the results were relatively decent.
“The bid-to-coverage ratio was somewhat subdued, but overall, the bidding results are seen as solid, with the actual winning bid exceeding the pre-auction forecasted price,” said Ryutaro Kimura, a senior fixed-income strategist at AXA Investment Managers.
Thursday’s sale came amid persistent fiscal and rate-hike concerns that have pushed long-term yields higher in recent days. The Ministry of Finance has announced plans to cut issuance of super-long government bonds in the fiscal year beginning in April, responding to requests from primary dealers.
Still, traders remain wary of the fiscal expansionary stance of Prime Minister Sanae Takaichi’s government, which has unveiled a record budget to fund an ambitious stimulus package.
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Japan’s much-watched auction of 30-year bonds may have passed off without too much of a hiccup, but longer-dated Japanese government bonds (JGBs) face the prospect of further losses this year.
Even though the offering sailed through, it drew weaker demand than the average over the past year, betraying poor sentiment on the ground.
JGBs — the worst performer among the world’s biggest markets last year — are facing another tough year as investors grapple with the biggest net increase in supply in well over a decade. This leaves private buyers with more issuance to digest as the Bank of Japan (BOJ) pulls back from its debt purchases.
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Meanwhile, the yen’s weakness has persisted even after the BOJ raised its policy rate to a three-decade high in December, fuelling concerns that the central bank may need to act more aggressively to curb currency depreciation and rein in inflation. That has pushed market expectations for the neutral rate higher.
Overnight index swaps have not yet fully priced in two additional BOJ rate hikes this year, implying scope for further repricing if inflation or the yen stays weak.
Uploaded by Evelyn Chan
