* Investors demand tepid at first bond auction of new
financial year
* Yield curve steepens as super-longs underperform
* Investors sell call options, but refrains from selling
puts
By Hideyuki Sano
TOKYO, April 3 (Reuters) – Japanese government bond prices
edged down on Tuesday after brokers found only tepid investor
appetite for a new 10-year bond offer from the Ministry of
Finance after having bid aggressively at the auction in
anticipation of strong real-money demand.
Investors’ absence at the first bond auction in the Japanese
financial year starting from April 1 also came as many
investors sell call options on JGBs, essentially bets that bonds
will have limited upside potential.
“The auction results were not bad. But there’s a question
over whether investors are buying at current levels. Some of
them may wait until the U.S. payroll data,” said Shunsuke Doi,
market analyst at SMBC Nikko Securities.
The auction of reopened 321st 10-year bonds drew fairly
strong bids, with the lowest price coming about 0.05 point above
market expectations, but buying appeared mostly to have come
from brokers wanting to cover short positions.
In the secondary market, the yield subsequently rose to
1.025 percent, up 1.5 basis point on the day,
with March 15 high of 1.060 percent seen as a major support for
the market for now.
In the past several months, the yield stayed mostly below 1
percent but many market participants think such low yields may
no longer be warranted given easing worries about the European
debt crisis.
Investors expect the global economy to muddle through
despite sporadic concerns about slowdown in China, and sharp
gains in Japanese shares so far this year is undercutting the
attraction of JGBs.
Against that backdrop, longer-dated bonds fared worse with
the 30-year bond yield rising 3.0 basis point to 1.980 percent
, its highest in more than two weeks and near 3
1/2-month high of 1.985 percent hit mid-March and steepening the
yield curve.
The June 10-year JGB futures fell 0.15 point to 141.59
.
Signs that investors see limited upside potential are also
evident in the options market, where, since the start of the new
financial year, investors have been selling call options.
Many Japanese banks are selling call options with strike
yield just below 1 percent, said a trader at a Japanese
brokerage.
On the other hand, put selling, normally another popular
strategy among Japanese investors, has been limited so far, in a
sign that investors have concerns about a potential slide in
JGBs.
There is speculation that some investors may be even buying
puts after a large amount of buying earlier this week in May JGB
futures puts with strike at 140.50, the trader said.
The shorter end of the yield curve weathered the storm,
thanks to expectations that the Bank of Japan could take more
easing steps as soon as this month after it has set inflation
goal of 1 percent in February.
Many analysts think it will be difficult for the central
bank to forecast that happening when it will publish its next
economic outlook report at the end of this month.
That leads some investors to speculate the BOJ will have to
come up with new measures then.
The five-year bond yield rose 0.5 basis point to 0.345
percent.
