JGBs fall after weaker-than-expected 20-year bond auction
fell on Tuesday after a
20-year bond auction
drew weaker-than-expected demand.
The 20-year
JGB yield
rose 2 basis points (bps) to 2.595%. The 10-year JGB yield rose 2.5 bps to 1.595%, its highest since July 25.
Yields move inversely to bond prices.
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JGBs fall after weaker-than-expected 20-year bond auction
Japanese government bonds experienced a decline. This followed a 20-year bond auction that showed weaker demand than anticipated. The 20-year JGB yield increased. The 10-year JGB yield also rose, reaching its highest point since July 25. Market participants are closely watching the Bank of Japan's potential rate hike in December.
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"The auction was relatively firm, but with the current level of the yield and expected demand from pension funds for rebalancing portfolios, it could have been better," said
Naoya Hasegawa
, chief bond strategist at Okasan Securities.
The auction received bids worth 3.09 times the amount sold, lower than the ratio of 3.15 times at the previous auction in July.
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But the tail, or the gap between the lowest and average price, narrowed to 0.13 point from 0.18 point, a sign of improvement.
Takashi Fujiwara
, chief fund manager at Resona Asset Management's fixed income investment division, said the market was concerned about the bid-to-cover ratio, which was lower than the 3.24 average of the past 12 months.
The auction, however, is not going to be a trigger for bear steepener, or the shape of the curve where super-long dated bonds rise faster than short-term rates, because of interest rate-hike expectation, Fujiwara said.
Swap rates indicated a 72% chance of the
Bank of Japan
raising rates by 25 bps to 0.75% at its policy meeting in December.
Yields on Japan's super-long bonds are under upward pressure as the market weighs the country's fiscal health. The yield on 30-year bonds hit a record high in July.
The two-year JGB yield inched up 0.5 bp to 0.83%. The five-year yield rose 2.5 bps to 1.14%.
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