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JGBs narrowly mixed ahead of 10-year auction

Tuesday, 5 Nov 2013 | 10:33 PM ET

TOKYO, Nov 6 (IFR) - Japanese government bond prices were narrowly mixed on Wednesday, ahead of the outcome of an auction of 10-year notes this session.

JGBs opened steady to moderately weaker on the back of a continued rise in U.S. Treasury yields on Tuesday, but then 20-year JGB prices turned firmer, sending its yield down 0.5 basis point to 1.495 percent, as one life insurer bought in that zone in relatively thin trading.

Other investors were seen largely sidelined on caution ahead of the results of this session's monthly 2.4 trillion yen ($24.35 billion) 10-year JGB auction.

The Ministry of Finance set the coupon on the new issue at 0.6 percent, the lowest level since May 1. The ministry could not re-open the current issue with its 0.8 percent coupon, as the difference between its coupon rate and the benchmark 10-year JGB yield has widened over 0.15 basis point.

The 10-year yield was last up 0.5 basis point at 0.605 percent.

Many regional banks are likely to buy the new 10-year notes on expectations that the Bank of Japan will purchase them in the secondary market under its massive JGB-buying programme, market participants said.

One money manager at a regional bank told IFR this morning that this session's 10-year auction was likely to proceed smoothly, led by dealers. Domestic money managers have shrugged off stronger-than-expected domestic corporate earnings reports published recently. Bullish investors have been buying 10-year JGBs as they believe the government's new economic stimulus steps will be insufficient to sustain Japan's economy after the consumption tax increase in April next year.

The yield on the current 5-year JGBs was indicated at 0.195 percent to 0.20 percent, compared with 0.195 percent on Tuesday.

The 30-year yield was flat at 1.645 percent, ahead of next Tuesday's monthly 500 billion yen offering of 30-year JGBs.

Lead December JGB futures moved in a narrow 144.90-144.95 range in the morning session before finishing down 0.04 at 144.93.