Demand for the June issue of 10-year government bonds dropped only slightly at Tuesday’s auction, indicating investors remain keen to buy bonds despite a drop in the coupon to an all-time low for the third straight month.
Reflecting the better-than-expected result, prices of 10-year bonds rose, sending the yield on the key issue to a new record closing low.
The yield on the No. 249 10-year, 0.6 percent bond briefly hit a record intraday low of 0.495 percent, dipping below 0.5 percent for the first time. In trading among dealers, it fell 0.03 percentage point from Monday to end at a record closing low of 0.5 percent.
The Finance Ministry auctioned about 1.5 trillion yen worth of the 0.5 percent, 10-year government bonds Tuesday. Bids totaled about 4.72 trillion yen, bringing the bid-to-cover ratio, or the ratio gauging the amount of bids to the amount auctioned, to 3.15.
That was down slightly from 3.45 in the auction last month, when the coupon was 0.6 percent.
Earlier in the day, the ministry set the coupon on the June issue at 0.5 percent per annum, down 0.1 percentage point from the May issue.
The coupon was cut as investors flocked to the bond market, dragging down yields on outstanding government bonds. With stock prices near 20-year lows and interest rates close to zero, investors are facing a dearth of investment options.
The ministry sets the coupon on the new issue of 10-year government bonds in view of yields on outstanding government bonds.
The coupon was cut to 0.9 percent in the January issue from 1 percent in the December issue, and has been lowered almost every month since.
Issue set for July 10
The Finance Ministry said Tuesday it will issue its third batch of bonds solely targeting individual investors on July 10, and they will carry a coupon of 0.05 percent per year, the bond’s floor coupon, for the first six months.
The coupon for the 10-year floating-rate bonds, set based on auction results of regular 10-year government bonds, was unchanged from the second batch of bonds issued in April, and nearly half of the 0.09 percent offered for the first round of bonds issued in March.
The ministry, which sells the bonds through financial institutions and post offices, said it will double the allotment of bonds sold through post offices from 75 billion yen worth to 150 billion yen.
The decision was made after a portion of the bonds was left unsold at major banks, although the bonds were sold out at post offices where commissions are not charged.
The bonds will be issued at 100 yen against par, with interest payable twice a year — on July 10 and Jan. 10.
The coupon will be reset twice a year, also based on the auction results of regular bonds. That means the coupon for the bonds to be issued in July could be revised from 0.05 percent in January.
The bonds for individuals carry a floor coupon of 0.05 percent to guarantee interest income for investors even if market interest rates plunge sharply.
Subscriptions to the new bonds will be accepted from June 12 to 27, the ministry said.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.