TOKYO (XFN-ASIA) - Japanese government bond prices closed the day broadly higher, encouraged by the sustained rally in US Treasurys overnight, dealers said.
Optimism over supply-demand conditions also buoyed the market as a batch of government bonds will mature next month and following the relatively solid outcome of today's auction of 5-year bonds, they said.
Short-term players were seen active buyers while long-term investors mostly stayed on the sidelines, awaiting key economic data and the auction of 10-government bonds Thursday, they said.
The yield on the benchmark 10-year bond closed at 1.635 pct, down from 1.655 pct at yesterday's close.
The yield on the two-year note slipped to 0.805 pct from 0.825 pct and the yield on the lead five-year note declined to 1.190 pct from 1.215 pct.
The yield on the bellwether 20-year bond dropped to 2.055 pct from 2.070 pct and the yield on the 30-year bond fell to 2.285 pct from 2.295 pct.
Bond prices move inversely to yields.
The price of the 10-year bond futures contract rose to 134.89 yen from 134.70 yen in late trading yesterday.
'Because last week's rate hike by the Bank of Japan has removed anxiety about the near-term prospects for monetary policy, those investors who did not buy bonds before are now scrambling to purchase them,' said Lehman Brothers strategist Makoto Yamashita.
'Expectations about the impact on the market of the maturing government bonds are supporting the bullish sentiment at the moment,' he added.
Dealers said the solid outcome of today's auction of five-year government bonds confirms this upbeat mood. The Ministry of Finance said the lowest accepted price at today's auction of two-year JGBs worth 1.7 trln yen was 99.935 yen, giving a yield of 0.833 pct.
At the previous auction of two-year debt on Jan 30, the lowest accepted price was 100.105 yen, giving a yield of 0.746 pct, with a bid-to-cover ratio of 4.556 to one.
Although optimism was the theme in today's trade, some caution was evident ahead of the release of key indicators later in the week, including industrial production data and the consumer price index for last month.
Economists forecast, on average, that nationwide core CPI for January will be unchanged from a year before due to softer crude oil prices.
'While expectations for weak upcoming economic data are now supporting the market, the confirmation of tepid inflation (for January) will not necessarily give investors the extra impetus to send the yield on the 10-year government bonds to below the 1.6 pct level,' Barclays Capital Securities strategist Masuhisa Kobayashi sad.
(1 usd = 120.27 yen)
yasuhiko.seki@xfn.com
© 2007 AFX News
