JGBs slip slightly but supported by BOJ easing expectations

TOKYO, April 19 Wed Apr 18, 2012 11:25pm EDT

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TOKYO, April 19 (Reuters) - Japanese government bond prices edged down on Thursday but remained wedged in recent ranges by expectations of further easing steps by the Bank of Japan next week.

* BOJ Governor Masaaki Shirakawa said late on Wednesday in New York that the central bank is "fully committed" to continuing powerful monetary easing through various measures, such as keeping interest rates practically at zero and purchasing financial assets until 1 percent inflation is in sight.

* Sources have said that the BOJ might ease at its next meeting on April 27 by expanding its 65 trillion yen asset-buying and loan programme by 5 trillion or 10 trillion yen, with the increase to be used for purchases of government bonds.

* "The market is now expecting the BOJ to do something. It's already priced in," said Le Ngoc Nhan, a JGB strategist at Morgan Stanley.

* The BOJ buys bonds with up to two years left to maturity, and the five-year tenor has outperformed as many market participants expect policymakers to extend the maturities, perhaps as early as next week.

* "The 5-year rate is below 30 basis points, so even if an expansion is announced, I don't think it's going to drive rates any lower than they are now," Nhan said.

* June 10-year JGB futures ended morning trade down 0.07 point at 142.55.

Open interest on the benchmark JGB futures contract this month has risen to its highest levels since August 2010, which could suggest a buildup of long positions.

* The yield on the latest 10-year JGBs rose 1 basis point to 0.945 percent, moving away from a 17-month low of 0.930 percent hit on Monday.

* The 5-year yield was flat at 0.290 percent, while the 20-year JGB continued to fare slightly better, with its yield easing half a basis point to 1.705 percent.

* Capital flows data from Japan's Ministry of Finance showed on Thursday that Japanese investors were net buyers of foreign bonds last week after large net selling in the first week of the new fiscal year, while foreign investors also turned net buyers of Japanese bonds last week.

* The JGB market shrugged off separate data showing Japan's exports rose in March from a year earlier for the first time in six months, though the country's trade balance returned to a deficit last month.

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