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JGBs rally, buying for superlongs, calm ahead of Fed decision

Tuesday, 17 Dec 2013 | 10:41 PM ET

TOKYO, Dec 18 (IFR) - Japanese government bond prices traded firmer on Wednesday, with better buying in superlong bonds, and investors were fairly relaxed about the Federal Reserve policy committee meeting, as they doubted whether the U.S. central bank would taper its stimulus programme at this point.

The Federal Open Market Committee meeting will conclude its two-day meeting later on Wednesday.

A big Japanese bank was suspected also of receiving 10-year this morning, putting downward pressure on long-end tenors in cash and swaps.

The Bank of Japan conducted JGB purchasing operations, which also provided some support.

JGB futures jumped to 144.18 in the open, but the upside stalled at 144.22, the lower-end of the Ichimoku cloud.

Futures then tested upside again and rallied to the morning's high of 144.26, moving into the Ichimoku cloud. But they then eased off to close at 144.19, up 11 ticks.

The bank that was suspected of receiving 10-years this morning, was rumoured to have bought the new 20-year JGBs at Tuesday's auction, which helped to improve market sentiment.

The 10-year swap rates dropped by 2.375 basis points on the day, outperforming 10-year bonds which firmed by just 1 basis point to 0.650 percent - a two-week low.

The BOJ entered into the bond market by buying 400 billion yen ($3.89 billion) of five- to 10-year bonds and 200 billion of superlong bonds, as part of its efforts to revive the world's third-largest economy.

Although the market made no real reaction to the operations, people were relieved as they had believed the market would fall if the central bank refrained from carrying out the operations.

Cash bonds were firmer especially in the ultra long-end sector. The 20-year yield was down 2 basis points at 1.535 percent while the 30-year yield slipped 1.5 basis points to 1.710 percent.