Reuters: Market News: JGBs mixed after Bernanke keeps easing hopes alive

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JGBs mixed after Bernanke keeps easing hopes alive Mar 27th 2012, 06:34 Tue Mar 27, 2012 2:34am EDT * Current 5, 10-yr cash bonds up on tight lending market * Fed easing hopes support JGBs despite surge in Nikkei * 1 pct in 10-yr yield seen as resistance * Market looks to political wrangling over sales tax hike By Hideyuki Sano TOKYO, March 27 (Reuters) - Japanese government bond prices ended mixed on Tuesday, showing resilience despite a surge in Japanese stocks as expectations of prolonged monetary easing in the United States propped up U.S. bonds. In erratic trade ahead of Japanese financial year-end on March 31, current five- and 10-year bonds outperformed as continued tightness in bond lending, or repo markets, in these two issues made it difficult to sell them short. U.S. Federal Reserve Chairman Ben Bernanke, while not dropping a direct hint of fresh easing, kept hopes alive for further bond purchases in the future, after saying on Monday the U.S. economy needs to grow more quickly to bring the unemployment rate down further. "Expectations of further easing had almost disappeared but they were revived after Bernanke's comments. That is producing a combination of higher stocks and firm bonds, just as we saw at the beginning of this year," said Akito Fukunaga, chief rates strategist at RBS. Benchmark June 10-year JGB futures ended flat at 141.81 . The firmness in JGBs came even as Japan's Nikkei average hit its highest closing level since a massive earthquake and tsunami on March 11 last year. The 20-year cash bond yield rose 0.5 basis point to 1.770 percent and the 30-year bond yield was up by as much at 1.945 percent. On the other hand, the current 10-year yield dipped 0.5 basis point to 1.010 percent, while the on-the-run five-year bond yield dipped 0.5 basis point to 0.325 percent. Their strength came from tightness in the bond lending market as some investors who are normally willing to lend bonds to brokers typically refrain from doing so near the financial year-end for regulatory reasons, often causing a short-squeeze in the lending market. Many market players also said 1 percent in the 10-year yield will be a major resistance level. WRANGLING OVER TAX JGBs could suffer a setback if Prime Minister Noda fails to get support for his sales tax hike bills from his own party's lawmakers this week, though many market players expect Noda to manage to get most of ruling coalition lawmakers on board. Noda is expected to try to persuade sceptics, including party heavyweight Ichiro Ozawa, as soon as he returns from a nuclear summit in Seoul later in the day so his cabinet can approve the bill by the end of this week. "I expect them to approve the tax hike at the end of the day. But if they don't, then that would be a bit of trouble for the market," said Shunsuke Doi, market analyst at SMBC Nikko Securities. Getting support from his own party is just one of many hurdles for Noda to push through his tax hike plan aimed at narrowing Japan's deficit. With his coalition lacking a majority in the upper house, he needs help from opposition parties, but so far they have showed few signs of cooperation. "If his sales tax hike plan flops, that will be quickly followed by credit downgrades. My feeling is that the market is underestimating that risk," said a trader at a Japanese bank. Japan's debt has reached 200 percent of its economy while its fiscal deficit is larger than most euro zone countries. But bets on, or hedge against, Japan's default have eased in the credit default swap market, with the spread of Japan's sovereign debt falling briefly falling below 100 basis points this week for the first time since October. Link this Share this Digg this Email Reprints

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