By Masayuki Kitano
TOKYO, Dec 9 (Reuters) - Japanese government bonds rose on Wednesday after Japan's third-quarter gross domestic product was revised down by more than expected, with bonds getting added support from a fall in Tokyo share prices.
The five-year/20-year yield spread hovered slightly below a seven-year peak hit the previous day, and 30-year JGBs gained some reprieve after being sold off the day before when a 30-year auction attracted poor demand.
JGBs have taken in stride news the day before that the government had agreed on a 7.2 trillion yen stimulus package, and that new JGB issuance for this fiscal year would rise by roughly 9 trillion yen, mainly to offset a tax revenue shortfall.
A focal point is the government's plans for debt offerings in the next fiscal year, when market players expect JGB issuance to the market to hit a record 145.3 trillion yen, according to a Reuters poll conducted this month.
Although Prime Minister Yukio Hatoyama reiterated on Tuesday that he wanted to keep new bond issuance below 44 trillion yen in fiscal 2010/11, which starts next April, the tone of his comments sounded weaker than previously, said RuiXue Xu, a rates strategist for RBS Securities.
'If it turns out to be larger than 44 (trillion yen), and say becomes 45 or 46, yields may head higher because of a fiscal risk premium,' Xu said.
Lead December 10-year JGB futures rose 0.27 point to 140.36 , nearing a 20-month peak of 140.49 hit last week. The March contract will soon take over the benchmark mantle, with the last trading date for the December contract looming on Thursday.
The benchmark 10-year yield declined 2.5 basis points to 1.240 percent.
The 30-year JGB yield dipped 1.5 basis point to 2.195 percent.
SHORT-COVERING
Gains in JGB futures and 10-year JGBs likely picked up steam as dealers covered short positions that they had taken in response to Tuesday's weak 30-year JGB auction, said Alexander Duering, head of relative value research Asia-Pacific for Deutsche Securities.
'The auction didn't go that well and I think most dealers are left long 30 years. But against those longs they have to have some hedge on,' he said.
'With the market rallying people are getting stopped out of their shorts,' Duering said, adding that bond dealers probably trimmed long positions in 30-year JGBs while buying back futures and 10-year bonds.
Japan's gross domestic product grew a revised 0.3 percent in the third quarter, below the median forecast of a 0.7 percent expansion and a quarter of the government's preliminary estimate of 1.2 percent growth issued last month, data released on Wednesday showed.
In the stock market, the benchmark Nikkei share average slipped 1.3 percent.
Another positive factor for JGBs was the previous day's flight-to-quality rally in U.S. Treasuries and German Bunds,
triggered by Fitch Ratings' decision to cut Greece's debt to BBB+ from A-, market players said.
The five-year yield dropped 2.5 basis points to 0.465 percent, holding firm even ahead of an auction of 2.4 trillion yen in five-year JGBs on Thursday.
The five-year yield hit a four-year low of 0.455 percent last Tuesday, when the BOJ called an emergency policy board meeting and decided to introduce a new money market operation to help bring down longer-term money market rates.
The five-year/20-year yield spread stood at 156 basis points after hitting a seven-year high of 157.5 basis points on Tuesday.
(Editing by Joseph Radford)
((masayuki.kitano@thomsonreuters.com; Reuters Messaging: masayuki.kitano.reuters.com@reuters.net; +81-3-6441-1872)) Keywords: MARKETS JAPAN JGB (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
TOKYO, Dec 9 (Reuters) - Japanese government bonds rose on Wednesday after Japan's third-quarter gross domestic product was revised down by more than expected, with bonds getting added support from a fall in Tokyo share prices.
The five-year/20-year yield spread hovered slightly below a seven-year peak hit the previous day, and 30-year JGBs gained some reprieve after being sold off the day before when a 30-year auction attracted poor demand.
JGBs have taken in stride news the day before that the government had agreed on a 7.2 trillion yen stimulus package, and that new JGB issuance for this fiscal year would rise by roughly 9 trillion yen, mainly to offset a tax revenue shortfall.
A focal point is the government's plans for debt offerings in the next fiscal year, when market players expect JGB issuance to the market to hit a record 145.3 trillion yen, according to a Reuters poll conducted this month.
Although Prime Minister Yukio Hatoyama reiterated on Tuesday that he wanted to keep new bond issuance below 44 trillion yen in fiscal 2010/11, which starts next April, the tone of his comments sounded weaker than previously, said RuiXue Xu, a rates strategist for RBS Securities.
'If it turns out to be larger than 44 (trillion yen), and say becomes 45 or 46, yields may head higher because of a fiscal risk premium,' Xu said.
Lead December 10-year JGB futures rose 0.27 point to 140.36 , nearing a 20-month peak of 140.49 hit last week. The March contract will soon take over the benchmark mantle, with the last trading date for the December contract looming on Thursday.
The benchmark 10-year yield declined 2.5 basis points to 1.240 percent.
The 30-year JGB yield dipped 1.5 basis point to 2.195 percent.
SHORT-COVERING
Gains in JGB futures and 10-year JGBs likely picked up steam as dealers covered short positions that they had taken in response to Tuesday's weak 30-year JGB auction, said Alexander Duering, head of relative value research Asia-Pacific for Deutsche Securities.
'The auction didn't go that well and I think most dealers are left long 30 years. But against those longs they have to have some hedge on,' he said.
'With the market rallying people are getting stopped out of their shorts,' Duering said, adding that bond dealers probably trimmed long positions in 30-year JGBs while buying back futures and 10-year bonds.
Japan's gross domestic product grew a revised 0.3 percent in the third quarter, below the median forecast of a 0.7 percent expansion and a quarter of the government's preliminary estimate of 1.2 percent growth issued last month, data released on Wednesday showed.
In the stock market, the benchmark Nikkei share average slipped 1.3 percent.
Another positive factor for JGBs was the previous day's flight-to-quality rally in U.S. Treasuries and German Bunds,
triggered by Fitch Ratings' decision to cut Greece's debt to BBB+ from A-, market players said.
The five-year yield dropped 2.5 basis points to 0.465 percent, holding firm even ahead of an auction of 2.4 trillion yen in five-year JGBs on Thursday.
The five-year yield hit a four-year low of 0.455 percent last Tuesday, when the BOJ called an emergency policy board meeting and decided to introduce a new money market operation to help bring down longer-term money market rates.
The five-year/20-year yield spread stood at 156 basis points after hitting a seven-year high of 157.5 basis points on Tuesday.
(Editing by Joseph Radford)
((masayuki.kitano@thomsonreuters.com; Reuters Messaging: masayuki.kitano.reuters.com@reuters.net; +81-3-6441-1872)) Keywords: MARKETS JAPAN JGB (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.