* Ten-year JGB futures hits a near two-week high
* Japan’s MOF to meet primary dealers on deficit financing
bill
By Dominic Lau
TOKYO, Oct 26 (Reuters) – Benchmark Japanese government
bonds inched higher on Friday, as Asian shares sold off on weak
corporate earnings and concerns about Chinese funds facing heavy
redemptions after media reported that the funds posted poor
quarterly results.
Those worries weighed on risky assets, with Tokyo’s Nikkei
share average down 1.4 percent and the MSCI index of
Asia-Pacific shares outside of Japan off 1.2
percent, while boosting the appeal of safe haven assets, such as
government bonds.
The 10-year yield eased 1 basis point to
0.765 percent, hitting a one-week low, and was down 1.5 basis
points this week.
Two-thirds of the 19 Nikkei companies that have reported
quarterly earnings so far undershot market expectations, while
65 percent of the 57 companies in the Thomson Reuters
Asia-Pacific ex-Japan index missed analysts’
estimates, according to Thomson Reuters StarMine.
Ten-year JGB futures rose 20 ticks to 144.24,
hitting a near two-week high and breaking above the 20-day
moving average at 144.16, after trading flat in the morning
session.
The Ministry of Finance (MOF) is to hold a meeting with JGB
primary dealers later in the day to discuss contingency plans in
case there is a delay in the passage of a deficit-financing
bill.
If the Japanese parliament fails to pass the bill, it would
prevent MOF from issuing bonds with which to fund government
spending, a similar situation to the U.S. debt ceiling impasse
last year.
Shogo Fujita, chief Japan bond strategist at Bank of America
Merrill Lynch, said it would lead to a steepening of the yield
curve, especially the longer-end sector, if the bill was not
passed in the Diet.
“There are three main scenarios: the credibility issue, the
economic issue and the supply & demand issue. All have different
implications but eventually lead to a repricing of the yield
curve in terms of a steepening,” he said.
“Politicians are reasonable people and they will probably
pass the bill by the end of November. Everything will be much
ado about nothing. But every day, as time passes, people are
starting to ponder the worst-case scenario.”
Yields on both the 20-year and 30-year debt
slipped 1.5 basis point, to 1.675 and 1.935
percent, respectively.
Yields on the 30-year bonds have risen 4.5 basis points so
far this month.
Fujita said the rise in 30-year bond yields was probably due
to political factors and investors positioning in the start of
the second half of Japan’s financial year ending March 2013.
Barclays Securities said any delay in debt auctions would
balloon the size of monthly JGB issuance in the following fiscal
year.
“To begin with, even if there is no interruption in this
year’s auctions, increased issuance of 200-500 billion yen per
month is believed to be required for FY13, so the increase in
monthly issuance including this factor would be 1.6-2.1 trillion
yen,” Barclays said in a report.
“This amount is huge and is sure to roil the markets. Given
the size of this impact, we think the possibility of the
deficit-covering bond bill not passing as something purely
within the confines of a risk scenario.”
The five-year yield edged down 0.5 basis point
to 0.190 percent, boosted by strong expectations that the Bank
of Japan would further ease monetary policy by increasing the
size of its asset buying programme, when it meets next week.
The central bank now buys bonds with up to three years left
to maturity in its asset purchase programme, hence supporting
shorter-dated notes.
