Record bidding at Japan’s 20-year bond sale boosts the yen
A 20-year Japanese government bond sale drew its strongest demand in a month, helping the yen climb 0.2% to 158.15 per dollar, while the euro also edged up as unrest in France and Italy unsettled markets there.
Investors submitted bids worth 5.84 times the bonds on offer at the latest 20-year JGB sale, a sharp jump from the 4.01 coverage ratio seen at the previous auction a month earlier. The yield on the 20-year note fell 6 basis points to 3.71% once the results were announced.
Masahiko Loo, who serves as senior fixed-income strategist for State Street Investment Management’s Tokyo office, described the robust turnout as evidence that money previously held in cash was flowing back into Japanese debt. He noted that investors increasingly regard JGBs as a safer alternative to European assets given the political and budgetary strains centred on France. According to Loo, climbing domestic yields combined with fresh buying from institutions are turning into a lasting prop for the yen versus currencies like the euro and the Swiss franc, even though overall dollar strength keeps dominating the USD/JPY pair.
Meanwhile in Europe, French officials imposed curfews across multiple cities on Monday in an effort to control nationwide demonstrations against the government, protests that have thrown President Emmanuel Macron’s remaining time in office into disarray. Italian authorities said they would send in 500 soldiers following two consecutive days of disorder in that country.
Even with this turbulence, the euro climbed 0.2% to reach $1.1234, while futures on French OAT bonds added 0.2% and German Bund futures gained 0.1%. Chris Weston, who heads research at Melbourne-based Pepperstone Group, observed that French sovereign risk was clearly showing up in European stock valuations, yet the euro’s steadiness indicated traders had not yet begun treating the situation as a wider threat to the eurozone.
The US dollar index eased 0.2% to 101.77, sitting near the bottom of its recent trading band as the pressure weighing on the euro eased somewhat.
Heavy appetite for the 20-year JGB auction and declining yields on longer-dated Japanese debt tend to bolster the yen by keeping capital invested domestically, while reduced anxiety over France and Italy’s political troubles takes some strain off the euro — and, in turn, off the dollar index.
Source: Economic Times Markets