JGBs fall after BOJ expands asset purchase but refrains from rate cut

TOKYO, March 16 (Reuters) - Japanese government bond prices dropped on Monday after the Bank of Japan expanded its purchase of riskier assets but refrained from cutting interest rates deeper into negative territory.

The BOJ doubled its purchases of exchange-traded funds (ETFs) and ramped up buying in corporate bonds and commercial paper, moving forward its meeting originally scheduled for March 18-19.

"There had been some speculation that the BOJ might cut rates so the market reacted a bit after the BOJ meeting," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

The BOJ's action came after the U.S. Federal Reserve cut interest rates by 100 basis points on Sunday to a target range of 0% to 0.25%, its second inter-meeting cut this month. It also promised to expand its balance sheet by at least $700 billion in coming weeks.

Benchmark 10-year JGB futures fell 0.40 point to 152.88.

The yield on the benchmark 10-year cash JGBs rose 2 basis points to 0.010%, a two-month high.

"There was selling in bonds to make up for losses in equities and other assets, which explains why JGBs did not rise much despite fall in stock prices," said Yusuke Ikawa, Japan strategist at BNP Paribas.

As a rout in global equities and fears of dollar funding incapacitated traders' ability to absorb risks, trade has become highly erratic.

Difference between maturities and issues with similar maturities were wide, market players said.

The 20-year JGB yield rose 0.5 basis point to 0.290% while the 30-year JGB yield rose 2 basis points to 0.340%.

The two-year JGB yield rose 1 basis point to minus 0.195% while the five-year yield rose 2.5 basis points to a two-month high of minus 0.105%.

The 40-year JGB yield rose 2 basis points to 0.330%.

JGBs correlations between interest rate derivatives have also broken down.

The 10-year swap rate, which usually moves in the same direction as bond yield, fell to minus 0.1125%.

Its spread with the 10-year cash bond yield fell to minus 0.1225%, the lowest since 2009. (Reporting by Hideyuki Sano; Editing by Shailesh Kuber)

Related Tags