Halister News

(Bloomberg) -- Japan govt bonds rally this week led by super-longer tenors as BOJ refrained from cutting purchases of very-long-term debt in its November plan while looming U.S. presidential election fuels risk aversion.

• Click here for weekly change in yield curve and here for market snapshot
• BOJ announced on Tuesday that it will maintain purchases of bonds due in over 10 years
• BOJ kept policy unchanged on Tuesday, shifted timetable for 2% inflation target to second half of period running through March 2019; trimmed CPI forecasts for FY2016 to FY2018, and says “risks to economic activity and prices are skewed to the downside”
• Extra auction of bonds with remaining maturities of 1-5 years drew bid-to-cover ratio of 4.95 on Wednesday, up from 4.89 at similar-maturity auction on Sept. 15
• September industrial output unchanged m/m vs est. +0.9%
• Ministry of Finance to sell 2.4t yen of 10-year bonds on Nov. 8 and 800b yen of 30-year bonds on Nov. 10

• WHAT THEY SAY
• Mitsubishi UFJ Trust and Banking (Hideo Suzuki, chief manager)
  • Bonds likely to be supported by risk-off sentiment amid uncertainties over U.S. presidential election but fluctuation of JGBs may be limited as they are less sensitive to external factors under BOJ’s yield control policy
  • Auctions of 10- and 30-year notes are likely to be smooth given lower volatility and these tenors are easier to sell to BOJ in the secondary market under central bank’s bond purchase operation

• Okasan Securities (Makoto Suzuki, senior bond strategist)
  • If Clinton wins, markets will probably see a return to weaker yen/higher stock trend eventually with concern about the stronger yen likely to remain for a while
  • Due to lingering risks of yen gains, it’s hard to predict a significant reduction in BOJ’s bond purchases
  • Investors may remain cautious of aggressively buying JGBs due to continued flattening of yield curve while there’s no drastic change in expectations for Fed rate hike
  • Auction of 10- and 30-year bonds may go smoothly but they may limit gains in JGBs

• Deutsche Securities (Makoto Yamashita, chief Japan interest- rate strategist)
  • Risk sentiment could swing depending on combination of president and parliament vote
  • Clinton has more fiscal expansionary policy than Obama while Trump has a more fiscal expansionary stance than Clinton
  • Both candidates could be factors for U.S. yields to rise
  • If Trump wins, JGB yields could rise somewhat on rising U.S. yields