Japan to bring forward cut in 20-yr bond issuance - sources

Credit: REUTERS/Florence Lo

By Takaya Yamaguchi

TOKYO, Dec 19 (Reuters) - Japan's Ministry of Finance will bring forward a planned 200 billion yen ($1.39 billion) cut in 20-year bond issuance to January from April, as rising interest rates dampen investor appetite for long-dated debt, two government sources said on Tuesday.

The plan calls for reducing the volume of 20-year JGBs sold per auction to 1.0 trillion yen from 1.2 trillion yen.

The sources spoke on condition of anonymity because they were not authorised to speak to media. Officials at the finance ministry could not be reached for comment immediately.

With few exceptions, sales this year of 20-year Japanese government bonds have been weak, analysts and traders say. This month's auction garnered the lowest demand since a tepid sale in September of last year, which was the worst-bid in a decade.

The finance ministry ramped up 20-year JGB issuance when 10-year JGB yields were driven below zero by the Bank of Japan's aggressive stimulus, making shorter-dated securities impossible to buy for regional banks and other small lenders, said Shoki Omori, chief Japan desk strategist at Mizuho Securities.

However, the BOJ opened the door to a significant rise in yields across the curve with a policy tweak a year ago.

That enabled those banks to purchase shorter tenors that are better suited to their portfolios, Omori added.

Omori doubted that the planned reduction would be enough to address depressed appetite for 20-year bonds.

"It's obviously oversupplied," he said. "There is still going to be a lack of demand."

The benchmark 20-year JGB yield JP20YTN=BTC sank to a 3 1/2-month low of 1.345% on Tuesday, as yields dropped across the curve after the Bank of Japan left ultra-easy stimulus settings unchanged and kept its dovish forward guidance in place. JP/

The 10-year yield JP10YTN=JBTC fell as low as 0.63%.

($1 = 143.4900 yen)

(Reporting by Takaya Yamaguchi; Additional reporting by Kevin Buckland; Writing by Tetsushi Kajimoto and Kevin Buckland; Editing by Muralikumar Anantharaman and Edmund Klamann)

((tetsushi.kajimoto@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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