JGBs fall in line with Treasuries, domestic demand strengthens prices

July 13
1:33 AM 2013

On Monday, the benchmark Japanese government bond (JGB) prices split after the US Federal Reserve announced tapering its bond-buying stimulus soon.  

  • Strategists and market participants said that domestic demand has limited losses.
  • Senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities Naomi Muguruma said that domestic investors are interested in buying on dips of JGBs because of the differences in economic conditions between US and Japan. Said dips for Japanese government bonds would be probably at 0.9% for the 10 year and around middle of 0.3% for the 5-year due to the difference in monetary policies. She added that the impact of high US yields would remain limited for the JGBs.
  • The government's reflationary policies helped the economy of Japan recover. This week, the Bank of Japan is widely expected to maintain its ultra-easy monetary stance and revise its economic assessment.
  • On Monday, the data released by the Bank of Japan showed its lending marking the biggest annual increase in four years last June. This suggested the central bank's aggressive monetary stimulus nudging companies to make new investments.
  • The US Federal Reserve is likely to begin its stimulus reduction. On Friday, the key nonfarm payrolls data for June showed US employers added 195,000 new jobs. This beat the expected 165,000 generation of new jobs. This led to a sharp selloff in Treasuries. The 10 year yield suffered its biggest one-day rise in nearly two years. This was the highest increase since August 2011.
  • For the past five weeks, the 10 year yield added 2 basis points to 0.875%. The yield was still in between the 0.80 to 0.90% trading range.
  • Ten year Japanese government bond futures ended morning trade down by 0.28 point at 142.27. This was after the earlier failing to one and a half week low of 142.14.
  • Slight steepening of the yield curve was experienced as the superlong tenor underperformed. The 30 year old yield rise 2.5 basis points to 1.880%. The 20 year yield rose by 3% basis points to 1.760%.

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