JGBs nearly flat ahead of OPEC ministerial meeting; 2-year yields fall on strong auction demand

The Japanese government bonds traded nearly flat Tuesday as investors await the OPEC ministerial gathering, in which oil producing countries are expected to strike an agreement on output cut. On the other hand, 2-year bond yields fell following stronger auction demand.

The benchmark 10-year bond yield, which moves inversely to its price, hovered around 0.01 percent, the yield on long-term 30-year note remained steady at 0.57 percent and the yield on short-term 2-year note slid 2 basis points to -0.16 percent by 06:30 GMT.

Markets will mostly remain quiet with little in the way of market-moving news, and with no important data scheduled to be released. Thereby, investors will focus on the outcome of OPEC meeting scheduled to be held on November 30.

The JGBs have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Crude oil prices fell on worries that the OPEC will be able to cut production output cut during a meeting on Wednesday. The International benchmark Brent futures fell 0.50 percent to $4.9 and West Texas Intermediate (WTI) dipped 0.6 percent to $46.7 by 04:40 GMT.

The Organization of the Petroleum Exporting Countries (OPEC) is meeting officially in Vienna on Wednesday to discuss a planned production cut in an effort to curb overproduction that has dogged markets and more than halved prices since 2014, Reuters reported.

With a high degree of uncertainty going into the last 24 hours before the meeting, oil price volatility is expected to be high. There remains disagreement among OPEC-members over which producers should cut by how much, and a plan for non-OPEC oil giant Russia to participate has so far also failed, they added.

According to Reuters, the auction of 2.3 trillion yen of two-year notes drew solid bids, producing the highest yield of -0.154 percent. The auction's tail, or the gap between the average and lowest price, was 0.004, the same as last auction and signaling a tight demand.

In terms of recent economic data, Japan’s Retail sales fell at an annualised 0.1 percent last month, following a 1.7 percent drop in September. Also, Japan’s household spending fell 0.4 percent from a year earlier (forecast -1 percent), following a 2.1 percent decline in September, data released by the Ministry of Internal Affairs and Communications showed Tuesday. Additionally, the country’s jobless rate came flat at 3 percent for October, remaining unchanged from the previous reading.

Meanwhile, the benchmark Nikkei 225 closed down 0.27 percent at 18,307.04. While at 06:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index stood neutral at +16.37 (higher than +75 represents bullish trend).