Thursday, October 3, 2013
Megabank Bond Purchases Push JGB Yields To 5-Month Low
TOKYO (Nikkei)--Leading banks are snapping up Japanese government bonds as they often do at the start of a fiscal half, sending the benchmark yield on newly issued 10-year JGBs to 0.64% Wednesday, its lowest point since May.
The previous day's 2.4 trillion yen auction of 10-year bonds attracted 8.1 trillion yen in bids, the most since last November. More than half of successful bids were placed by unknown bidders. These mystery parties are widely regarded as megabanks, which are thought to be the only players other than securities firms that can participate directly in an auction.
Meanwhile, the Bank of Japan's JGB-buying operation on Wednesday had lower bid-to-cover ratios than a pervious operation, highlighting that bond-selling pressure has weakened.
"We have been increasing our JGB holdings since hitting a bottom at the end of June," a senior official at one megabank says. Another executive notes that restored stability in the bond market is a big factor.
City banks extended new loans at the average contract interest rate of 0.493% in August, down 0.288 percentage point on the month and an all-time low, according to BOJ data released Wednesday. City banks are Mizuho Bank, Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corp., Resona Bank and Saitama Resona Bank.
"Banks are having a hard time securing sufficient lending margins, so they are once again investing in bonds as a source of income for the second half," explains an official at a bank-affiliated brokerage.
City banks' JGB holdings increased to 85.43 trillion yen as of Aug. 31, up 58.6 billion yen on the month, according to BOJ. The gain was the first since BOJ Governor Haruhiko Kuroda rolled out unconventional easing steps in April.
The BOJ may be welcoming the decline in long-term rates, but it may not be happy that megabanks are stepping up JGB purchases. This is because for the BOJ to boost the monetary base, one of its policy targets, it is essential that megabanks sell JGBs during BOJ operations and increase their current accounts deposited at the central bank.
(The Nikkei, Oct. 3 morning edition)