JGBs steady, brace for possible US govt shutdown, key domestic cues

Reuters

TOKYO, Sept 30 (IFR) - Japanese government bond prices weresteady on Monday morning, as traders braced for a possibleshutdown of the U.S. government and looked ahead to a run of keydomestic events on Tuesday.

Activity was subdued on the last trading day of the fiscalfirst half year, largely unaffected by a big drop in Japaneseequities and stronger U.S. Treasuries in the previous session.

Meanwhile global markets were buffeted by politicalwrangling in Washington, as it seemed increasingly unlikely thatRepublicans and Democrats could reach a deal on funding thegovernment before the fiscal year ends at midnight on Monday.

The standoff is a harbinger of the next big politicalbattle: raising the federal government's borrowing authority.Failure to do so by mid-October may result in a historic debtdefault that could cripple the U.S. economy and send shockwavesaround the globe.

Traders were also focusing on several key events on Tuesday,including the Bank of Japan's quarterly tankan survey ofbusiness sentiment, a monthly auction of 10-year JGBs and PrimeMinister Shinzo Abe's announcement about the government's planto a hike Japan's consumption tax.

One regional banker told IFR that his bank sees a gradualincrease in borrowing from large-sized companies, but seemedunsure about the outlook for JGB yields.

As usual, the BOJ offered to buy outright 850 billion yen ofJGBs today in three tranches in the secondary market under itsmassive asset-buying program, comprised of 300 billion yen inthe 1-year to 3-year zone, 350 billion yen in the 3-year to5-year zone, and another 200 billion with 10 years or longer tomaturity.

At midday, yields on the current 5-year JGBs were indicated at 0.230 percent to 0.235 percent, versus 0.235percent last Friday, while the 10-year yield wasdown 0.5 basis point at 0.675 percent.

The yields on 20-year JGBs and 30-year JGBs were unchanged from last Friday at 1.570 percentand 1.700 percent, respectively.

The Nikkei stock index was down 1.7 percent. LeadDecember JGB futures moved in a 144.18-144.27 rangebefore finishing the morning session up 0.05 point at 144.19.

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