Yen jumps after JGB auction draws big demand, euro finds relief

By Gregor Stuart Hunter

SINGAPORE, Oct 20 (Reuters) - The yen snapped a two-day losing streak against the dollar in Asian trading on Tuesday after an auction of long-dated Japanese government bonds drew record demand, while growing political risk in Europe continued to test traders' nerves.

An auction of 20-year Japanese government bonds received bids worth 5.84 times the amount sold, handily beating the 4.01 times at the previous auction last month. That propelled the yen 0.2% higher to 158.15 yen against the US dollar.

"The record 20-year auction is a strong signal that sidelined cash is finally coming back," said Masahiko Loo, senior fixed-income strategist at State Street Investment Management in Tokyo.

"JGBs are also starting to look like a relative haven from Europe's political and fiscal volatility, particularly around France," he added. 

The yen's value has been relatively resilient against other currencies including the euro and Swiss franc, Loo said, indicating "higher domestic yields and returning institutional demand are becoming a structural support for Japanese assets, even when US dollar strength dominates USD/JPY."

The yield on the 20-year Japanese government bond fell 6 basis points to 3.71% after the auction.

In France, authorities set curfews in several cities on Monday to curb nationwide anti-government protests which have plunged President Emmanuel Macron’s final months in office into turmoil. In Italy, the government said it would dispatch 500 troops after two days of unrest.

The euro rallied 0.2% to $1.1234, while French OAT futures rose 0.2% and German bund futures edged 0.1% higher.

"French sovereign risk is clearly being priced into European equities, but the euro's resilience suggests traders aren't yet treating it as a systemic European problem," Chris Weston, head of research at Pepperstone Group in Melbourne, said in a note.

The British pound rose 0.4% to $1.3351. The Australian dollar was up 0.1% at $0.6989 while its New Zealand counterpart gained 0.4% to $0.5684.

The US dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.2% at 101.77, near the lower end of the trading range it has sat in throughout the month, as pressure eased on the euro.

Elsewhere, the Canadian dollar strengthened 0.2% to $1.40775 against the greenback, nearing its strongest level of the past month. The currency was little changed after Alberta residents chose to remain part of Canada in the province's first-ever vote on whether to start the process towards holding a binding referendum on separation.

The Chinese yuan strengthened 0.1% against the dollar to 6.678 yuan in offshore trade after the People's Bank of China kept interest rates on hold, in line with market expectations.

Bitcoin slipped 0.3% to $81,674.25 while ether edged down 0.2% at $2,393.21.

(Reporting by Gregor Stuart Hunter; Editing by Christopher Cushing and Edwina Gibbs)