(Bloomberg):Bond prices are expected to fall on the 3rd. Selling is likely to lead the market due to concerns about the 10-year government bond auction that will be held on the same day. Long-term interest rates in Europe rose, and yen bond futures were weak in overnight trading. The U.S. market was closed for the Labor Day holiday.

“The focus is on how much adjustment will be made for the 10-year bond auction,” said Okumura Jin, senior interest rate strategist at SMBC Nikko Securities, predicting a weak market. “Government bond auctions tend to be a factor in limited interest rate increases,” and with auctions for 30-year and 5-year bonds continuing until the 20-year bond on the 12th, today’s auction itself will be easily digested, but there is little chance of an increase after it passes.

His forecast range for the yield on the newly issued 10-year government bonds is 0.900 to 0.930% (closing at 0.905% on the 2nd), and the main futures contract for September is 144.35 yen to 144.65 yen (closing at 144.60 yen on the 2nd).

In overnight futures trading, September contracts closed at 144.51 yen, down 9 sen from the closing price of daytime trading on the 2nd.

10-Year Bond Auction

  • The planned issuance amount is about 2.6 trillion yen, the same as last time.
  • The pre-issue (WI) transaction on the 2nd is expected to be around 0.92%, with the nominal interest rate expected to remain at 1.1%, the same as last time.
  • Yusuke Ikawa, Market Strategist at BNP Paribas Securities
    • Interest rates are still not high enough
      • The current level is equivalent to the 10-year average of the policy interest rate if interest rates were to start increasing by the end of the year and then be raised twice a year to 1%, but there is no premium added.
    • Given that quantitative tightening will be further implemented from next month, unless there is a correction close to 1%, there will be no buying beyond short covering.
  • Note: Past auction results for 10-year government bonds (table)

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