Japan bonds steady ahead of BOJ decision; strong auction lends support

TOKYO, Oct 29 : Japanese government bonds (JGBs) were steady on Thursday, a day before the Bank of Japan's monetary policy decision, while strong demand at an auction of 2-year notes provided support.

The market was also buoyed by gains in US Treasuries after the Federal Reserve left interest rates unchanged and gave few signals about the chances of a hike at the next meeting in December.

"The market seemed to perceive it as less hawkish than expected," said Yuhi Kawano, a market analyst at Mizuho Securities.

"Under these circumstances, it’s easy to see why the need for the Bank of Japan to raise rates at a high pace seems low, which should be supportive for the yen bond market."

• The benchmark 2-year JGB yield eased half a basis point to 1.895 per cent, reversing an earlier small rise following the auction results; yields fall when bond prices rise

• A measure of demand called the bid-to-cover ratio rose to 4.03 at the 2-year auction, from 3.89 at a sale last month

• The 10-year JGB yield also added 0.5 bp to 2.83 per cent, while the 5-year yield was flat at 2.265 per cent

• The 30-year yield edged up half a basis point to 3.88 per cent; the 20-year JGB hadn't traded as of 0514 GMT

• The BOJ is likely to leave rates unchanged on Friday and hike by a quarter-point in December, according to a Reuters poll of economists