"The results were not bad," said Katsutoshi Inadome, a fixed income strategist at Mitsubishi UFJ Securities. "The fact that the 20-year yield had pulled up to attractive levels ahead of the auction probably made it easier for the main players in the sector, those investors concerned about absolute levels of yields, to buy," Inadome said.
Market players also said demand at the auction was supported by short-covering needs among dealers. Lead March 10-year JGB futures fell 0.17 point to 138.98. The benchmark Nikkei share average rose 1.2 percent, creeping back in the direction of a 15-month high struck last week, and helped drag JGB futures lower.
The benchmark 10-year JGB yield rose 1 basis point to 1.340 percent, edging up in the direction of a two-month high of 1.365 percent hit earlier in January. The 20-year JGB yield was steady at 2.140 percent, hovering near a two-month high of 2.165 percent hit earlier this month.
Analysts said 20-year JGBs would probably remain weak compared to short- and medium-term JGBs despite the firm demand at the latest 20-year JGB auction and that the five- to 20-year yield curve was likely to stay steep. This yield spread narrowed slightly on the day to 162 basis points, but was still near a decade-high just above 165 basis points hit earlier in the month.
"I don't think you can say that the curve will flatten just based on the fact that the 20-year auction is out of the way and the curve is already steep," said Makoto Yamashita, chief Japan interest rate strategist at Deutsche Securities. A series of 20- and 30-year JGB auctions are coming up over the next several months, meaning investors will probably not rush to buy super-long debt, Yamashita said.
While short- and medium-term JGBs have been supported by market expectations for the Bank of Japan to keep interest rates near zero for an extended period, longer-end bonds have been more susceptible to concerns about rising debt issuance. Japan will issue 144.3 trillion yen in government bonds (JGBs) to the market in fiscal 2010/11 starting in April 2010, up 4.9 percent from this year's record high.