U.S. Markets closed

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

TOKYO, Sept 30 (IFR) - Japanese government bond prices were steady on Monday morning, as traders braced for a possible shutdown of the U.S. government and looked ahead to a run of key domestic events on Tuesday.

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

Meanwhile global markets were buffeted by political wrangling in Washington, as it seemed increasingly unlikely that Republicans and Democrats could reach a deal on funding the government before the fiscal year ends at midnight on Monday.

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

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

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

As usual, the BOJ offered to buy outright 850 billion yen of JGBs today in three tranches in the secondary market under its massive asset-buying program, comprised of 300 billion yen in the 1-year to 3-year zone, 350 billion yen in the 3-year to 5-year zone, and another 200 billion with 10 years or longer to maturity.

At midday, yields on the current 5-year JGBs were indicated at 0.230 percent to 0.235 percent, versus 0.235 percent last Friday, while the 10-year yield was down 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 percent and 1.700 percent, respectively.

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