JGBs gain after Japan announces to lower super long bond offerings

Japanese government bonds gained on Friday after the country’s cabinet announced to issue less 30- to 40-year bonds in fiscal year 2018/19 as demand for super-long debt instruments is expected to decline among institutional investors.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1 basis point to 0.054 percent, the yield on new long-term 40-year also fell 1/2 basis point to 0.970 percent and the yield on short-term 2-year dipped 1/2 basis point at -0.147 percent by 04:20 GMT.

According to the recent Reuters report, Japan plans to reduce the issuance of almost all maturities of Japanese government bonds (JGBs) during the fiscal year starting April 1, the Ministry of Finance (MOF) said on Friday. Reduced funding demand for rolling over its debt from previous years will allow the MOF to issue the smallest amount of JGBs in nine years in fiscal 2018/19. The MOF will cut the offer amount of 40-, 30-, 10- and two-year JGBs, as well as one-year treasury discount bills, by 100 billion yen ($880 million) per auction and slash the five-year JGB offer amount per auction by 200 billion yen.

On Thursday, the Bank of Japan trimmed its purchases of Japanese government bonds maturing in 10 to 25 years in its buying operations held today. The central bank offered to buy 200 billion yen (10-25 years of maturity), down from Monday’s 410 billion yen, 300 billion yen of JGBs maturing in three to five years, and 250 billion yen below 3 years.

The BoJ is expected to maintain its ‘QQE with yield curve control’ policy unchanged at this week’s monetary policy meeting and markets will be listening closely whether Kuroda will elaborate on recent comments, according to a recent report from Danske Bank.

Speculations about policy tightening from the Bank of Japan (BoJ) have gained momentum since governor Kuroda gave a speech at the University of Zurich, where he mentioned the “reversal rate”. Since then, Kuroda has backtracked somewhat on the Zurich remarks, saying that the yield curve control is designed to be highly sustainable. The economic upturn in Japan is still mainly driven by foreign demand as Japanese exporters enjoy tailwind from the relatively weak yen.

Meanwhile, Japan’s Nikkei 225 traded 0.25 percent higher at 22,913.50 by 04:40, while at 04:00GMT, the FxWirePro's Hourly Yen Strength Index remained highly bullish at -140.78 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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