MARKET MOVER - BNP PARIBAS - Investment Services India

This section is classified as non-objective research
decline can be at least partially attributed to a
lengthening of the average maturity of rinban
purchases stemming from the APP's concentration
on the short end of the curve. However, with the
BoJ's +1% "price stability goal" still looking to be well
out of reach, we would expect APP holdings to be
maintained at a high level even after the initial
purchase targets are met, thereby creating a need for
the MOF to issue JGBs to market investors.
This could provide theoretical justification for hiking
issuance of 2y JGBs. However, doing so would run
counter to the MOF's goal of lengthening the average
maturity of its debt. Hence, we expect to see an
increase in 5y issuance aimed at reducing
refinancing risk.
Turning our attention to the super-long sector, it is
worth noting that 30y and 40y issuance amounts
have been unchanged since FY2011. Minutes of
previous Meetings of JGB Market Special
Participants indicate that the MOF has considered
altering its auction frequencies in the event that
higher issuance becomes necessary. We expect that
the possibility of larger 30y or 40y offerings for
FY2013 will be discussed at least to some extent, but
with these sectors having performed relatively poorly
so far in FY2012, issuance amounts are ultimately
likely to be left on hold. The 20y sector has also
underperformed the 10y sector quite significantly
since monthly issuance was hiked (from JPY 1.1trn
to JPY 1.2trn) in April, which suggests that the
potential market impact of hiking super-long issuance
might be too great to justify the increase in the
average debt maturity.
The government may therefore be left with little
option but to increase issuance in the 10y sector,
which should cause few (if any) problems for market
0
-5
-10
-15
-20
-25
Chart 2: Yield Curve
0 5 10 15 20 25 30 35 40
Source: BNP Paribas
Change (LH S, bp) 3/30/2012 (RH S, % )
9/14/2012 (RH S, % )
Table 2: JGB Issuance Size (JPY trn)
FY2012
Initial
FY2013
Forecast
Chg
Breakdown by JGB types
40yr 1.6 1.6 0.0
30yr 5.6 5.6 0.0
20yr 14.4 14.4 0.0
15yr floater 0.0 0.0 0.0
10yr 27.6 28.8 1.2
10yr Linker 0.0 0.0 0.0
5yr 30.0 30.0 0.0
2yr 32.4 33.6 1.2
T-bill 30.9 30.9 0.0
Enhanced Liquidity 7.2 7.2 0.0
Calendar base 149.7 152.1 2.4
Source: MoF, BNP Paribas
digestion and will enable a modest lengthening of the
average maturity. 10y issuance was also hiked (from
JPY 2.2trn to JPY 2.3trn per month) from April of this
year, but this did not have any discernible impact on
pricing. The MOF might also wish to consider altering
the maturities offered at auctions for enhanced
liquidity as a means of issuing super-long JGBs
without causing too much market disruption.
2.5
2.0
1.5
1.0
0.5
0.0
Tomohisa Fujiki 20 September 2012
Market Mover
31
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