Japanese govt bond declines arrested by BOJ operation

BY Reuters | ECONOMIC | 11/21/22 12:00 AM EST

SINGAPORE, Nov 21 (Reuters) - Japanese 10-year bond futures hit their lowest levels in a week on Monday, mirroring a similar drop in U.S. Treasuries as markets reassess monetary tightening expectations, before the Bank of Japan's daily operations put a floor under bonds.

Benchmark 10-year JGB futures fell as much as 14 yen to 149.24, before setting around 149.35 yen.

The 10-year JGB, which the BOJ targets as part of its yield curve control (YCC) policy, was untraded, while the 20-year JGB yield rose 2 basis points to 1.065%.

The BOJ's relatively large, limited-price bond buying operation, which comprises offers to buy as much as 1.75 trillion yen ($12.47 billion) worth of bonds across the maturity buckets -- 1-3 years, 3-5 years, 5-10 years, and 10-25 years -- seemed to have stemmed the slide in bonds.

Katsutoshi Inadome, senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said the operation offered a wide range of targets too, so the market was seeing both supply and demand.

Inadome also pointed to plans by life insurance companies to buy more long-term bonds in the second half of the year as helping sentiment in that part of the curve.

JP Morgan analysts said Monday's data from the Japan Securities Dealers Association for October showed foreign and domestic players sold large amounts of long-term bonds, but there was not much churn in the intermediate or super-long papers.

"These sectors have made progress in pricing in a YCC tweak and may be waiting for a tweak to some extent," JP Morgan wrote.

"That said, in the long sector, we envisage that there will be mixed flows as we approach the end of Governor (Haruhiko) Kuroda's term as market participants build short positions and cover shorts." ($1 = 140.3800 yen) (Reporting by Tokyo markets team and Vidya Ranganathan; Editing by Savio D'Souza)

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Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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