JGBs fall to 7 1/2-month lows after tepid auction

Credit: REUTERS/Thomas White

Japanese government bond (JGB) prices dropped on Tuesday, with benchmark futures falling to a 7 1/2-month low, after an auction of 10-year JGBs witnessed weak demand.

TOKYO, Dec 3 (Reuters) - Japanese government bond (JGB) prices dropped on Tuesday, with benchmark futures falling to a 7 1/2-month low, after an auction of 10-year JGBs witnessed weak demand.

Many investors were reluctant to buy negative-yielding JGBs due to lingering uncertainty around the U.S.-China trade deal.

Although fears of a re-escalation in trade tensions after U.S. legislation supporting Hong Kong protesters last week dented risk assets, investors were in no haste to buy bonds either as they still think a compromise will be reached.

Against that backdrop, the 2.1-trillion yen auction of 10-year JGBs drew bids 3.28 times the offer, down from 3.62 times in the previous auction.

The auction's tail, or the gap between the lowest and average prices, widened to 0.16 from 0.05 last month.

Benchmark 10-year JGB futures 2JGBv1 fell 0.22 point to 152.54, the lowest close since mid-April. Trading volume jumped to 41,631 lots, the highest in about a month.

The 10-year cash JGB yield JP10YTN=JBTC rose 2.5 basis points to minus 0.025%, hitting its highest level since April.

The five-year yield JP5YTN=JBTC rose 2.5 basis points to minus 0.135%, a 7 1/2-month high.

The two-year JGB yield JP2YTN=JBTC rose 1.5 basis points to minus 0.155%.

Yields on longer-dated bonds also rose, but they stayed below their multi-month peaks hit last month.

The 20-year JGB yield JP20YTN=JBTC rose 2 basis points to 0.290%, compared to its November peak of 0.325%, a 5 1/2-month high, while the 30-year JGB yield JP30YTN=JBTC rose 1.5 basis points to 0.440%, versus 0.485% touched in mid-November.

(Reporting by Tokyo Markets Team; editing by Uttaresh.V)

((hideyuki.sano@thomsonreuters.com; +81 3 4563 2768 ))

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