JGBs fall as 5-year auction disappointed (Reuters) (10-03-2011)

TOKYO - Long-dated Japanese government bond prices fell on Thursday as a disappointing five-year bond auction offset any boost from a fall in share prices in the wake of soft Chinese trade data.

The June futures contract, which will take over benchmark status from the March contract from Friday, dropped 0.02 point in price to 138.54 and the auction of 2.4 trillion yen ($29 billion) of 5-year JGBs drew weak demand as many domestic investors stayed away ahead of their book closing at the end of this month.

Although its bid-to-cover of 3.49 times the offer was close to the past average, the lowest accepted price was weaker than many market players had expected.

JGBs' reversed early gains, even though Japanese share prices extended their falls after data showed China ran a surprise trade deficit of $7.3 billion in February, triggering some jitters about the outlook for global growth and pushing Chinese stocks lower.

The 10-year bonds rose 0.5 basis point to 1.300 percent, while the 5-year bond yield climbed 1.0 basis point to 0.570 percent.

According to traders, buying in short-term paper may reflect the view that Japan's persistent deflation is likely to keep the Bank of Japan from raising interest rates any time soon even though many central banks in the world are expected to raise rates to counter inflation.

Some traders said JGBs could gain further as there are a limited amount of new offers until the end of the month, with a 1.1 trillion yen 20-year JGB auction the only planned offer until March 31.

Source: Reuters