Reply #12: Japanese government bond auction overshadowed by shares

[EuroObserver]

TOKYO, Feb 2 (Reuters) - The 10-year Japanese government bond yield hovered at a seven-week high on Thursday as the Nikkei share average rose to its highest point in five years, but solid auction results helped bonds trim some of their earlier losses.

Japan's Ministry of Finance offered 1.9 trillion yen ($16 billion) of 10-year JGBs with a 1.6 percent coupon, the highest since September 2004. "There was some caution about demand in the secondary market but once follow-through buying by investors was confirmed, the market rebounded slightly," said Hiroyuki Kubota, chief JGB analyst at Fisco. "But once such buying subsided, investors turned their focus back to the steady rise in shares, limiting JGB gains," he said. March futures ended the day down 0.20 point at 136.72 <0#2JGB:> after slipping as low as 136.52. Futures rose to a high of 136.80 after the auction result was announced.

The yield on most recent 10-year cash JGB <0#JPTSY=JBTC> rose one basis point to 1.555 percent, easing from the day's high of 1.580 percent, its highest since mid-December. The five-year yield rose 2.5 points to 0.920 percent, off a near three-month high of 0.935 percent hit early in the day. Super-long bonds were the only gainers across the curve, with the 30-year yield falling half a basis point to 2.360 percent.

"Domestic and foreign investors, probably pension funds and other long-term holders, were buying the maturity, betting on a curve flattening," said a trader at a foreign securities firm. /more...