Japanese government bonds close mostly higher on auction results, stocks' fall

Tue, Feb 26 2008, 07:23 GMT
http://www.afxnews.com

TOKYO (Thomson Financial) - Japanese government bond prices closed mostly higher Tuesday, erasing early losses after a special afternoon auction of 20-year government bonds showed better-than-expected results and the stock market reversed an early advance and finished lower.

The lowest accepted price at Tuesday's auction of 800 billion yen worth of 20-year government bonds, which carry a coupon of 2.1 percent, was 99.60 yen, giving a yield of 2.128 percent, the Ministry of Finance said.

The average bid was 99.64 yen and the bid-to-cover ratio was 4.18 to one, compared to 2.60 to one in the previous auction.

On the Tokyo stock market, the benchmark Nikkei key index closed down 0.7 percent at 13,824.72 in cautious trade, after it topped 14,000 points for the first time since January 15 in early trade. The shares were initially firmer as concerns about the credit market crisis eased after the ratings of troubled US bond insurers were affirmed by Standard & Poor's.

"The bond market was supported by the auction results and the stocks' fall, but its upside was heavy compared to the level of decline in stocks," said Ryohei Ajisaka, chief JGB strategist at Daiwa Securities SMBC.

The bond market faced initial selling pressure following weak US Treasury trading overnight as sentiment favored the stock market after the troubled US bond insurers retained their S&P ratings.

S&P affirmed its "AAA" ratings on MBIA Inc and Ambac Financial Group Inc, saying it appears the bond insurers will raise enough cash to pay the claims they are likely to face.

"In the case of the US, it is said investors unwound the flight-to-quality movement. But the ratings affirmation is not an essential solution to the ailing bond insurers and the subprime mortgage loan trouble has not been resolved," Ajisaka said.

The market is also looking ahead to a raft of economic data and events from Japan and the US this week. Japan is set to release industrial output, consumer inflation, unemployment as well as housing market data for January.

"Industrial output will be in focus as production is one of the key data indicators of Japan's economic situation as it leads corporations' capital expenditure. Weaker-than-expected production data could raise worries about the prospects of the economy," said Aijisaka.

The government is predicting that industrial output will fall by 0.4 percent in January from December and decline by 2.2 percent in February from January.

Federal Reserve Chairman Ben Bernanke is to testify before congressional committees on Wednesday and Thursday on monetary policy, in which he is expected to provide some insight on the outlook for the US economy.

Also due out of the US are data on fourth-quarter gross domestic product and the housing market.

The outlook on the US economy seems to be weak and the numbers are likely to support that view, analysts said.

Another area of interest is the replacement for Bank of Japan's governor Toshihiko Fukui, whose term will expire later next month.

The government is likely to present a proposal to appoint Bank of Japan Deputy Governor Toshiro Muto as the central bank's next chief to the ruling and opposition parties this week, according to the Nikkei business daily report over the weekend.

The yield on the benchmark 10-year bond closed down at 1.475 percent from 1.485 percent late Monday.

The yield on the two-year note rose to 0.615 percent from 0.605 percent while the yield on the five-year bond inched down to 0.955 percent from 0.960 percent.

The yield on the 20-year bond fell to 2.110 percent from 2.120 percent and the yield on the 30-year bond declined to 2.345 percent from 2.360 percent.

Bond prices move inversely to yields.

The price of the March futures contract for the 10-year bond was higher at 137.24 yen from 137.15 yen late Monday.

(1 US dollar = 107.91 yen)