Japanese bonds pare gains
Japanese government bonds pared gains today after the Bank of Japan took further easing steps as expected, although benchmark yields stayed well off a nearly seven-week high hit in the previous session.
The BOJ expanded its asset-buying and lending programme (APP) by 10 trillion yen (€90 billion) to 101 trillion yen, a widely anticipated move to ease monetary policy in response to intense political pressure.
"Expectations for the BOJ's expansion of the APP were divided, with some expecting it to happen either this month or next, and many were more inclined to believe it would happen in January, so it's not a surprise, but they did it this time, not next time," said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.
"At least it gives a message to the market that the BOJ is willing to do something more.”
The central bank faces intensifying pressure from Shinzo Abe, the country's next leader, to boost efforts to beat deflation. Mr Abe said today that the BOJ is carrying out the policy steps sought by his Liberal Democratic Party (LDP) one at a time.
Yields on cash 10-year JGBs fell 1 basis point to 0.770 per cent, above the session low of 0.755 per cent but still shy of yesterday’s high of 0.780 per cent, which was their highest level since November 2nd.
The 10-year JGB futures contract snapped a five-session losing streak, adding 0.13 point to end at 144.01, although below its morning close of 144.08. Yesterday, futures hit an intraday low of 143.70, their lowest since September 20th.
Discussion at today’s BOJ meeting of cutting interest paid on excess reserves parked at the central bank by financial firms to zero from the current 0.1 per cent was one factor supporting prices of shorter maturities, Citigroup's Shimizu said.
Yields on two-year notes were flat at 0.90 per cent while those on five-year debt gave up half a basis point to 0.180 per cent.
The recently battered superlong sector outperformed today, with life insurers said to be buying, though flows were said to be light. Long maturities suffered in recent weeks amid concern that Mr Abe's reflationary policies could lead to inflation in the long term.
Yields on 20-year bonds fell 1 basis point to 1.735 per cent, up from 1.720 earlier. Yesterday, they rose as high as 1.750 per cent in the previous session, their highest since early April.
Yields on 30-year bonds lost 2 basis points to 1.970 per cent, up from a low of 1.955 per cent before the BOJ's announcement.
"Life insurers are said to continue to be buying at these levels, on the chance that the US fiscal cliff talks drag on longer and keep Treasury yields and those on JGBs from rising much this year," said a fixed-income fund manager at a Japanese asset management firm in Tokyo.
The budget stalemate in Washington will shift for the first time to the floor of the US House of Representatives today.