JGBs inch down as investors await BOJ policy decision

TOKYO Thu Oct 4, 2012 11:07pm EDT

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TOKYO Oct 5 (Reuters) - Japan government bonds were mostly lower in relatively thin trade on Friday as stronger equities decreased the appeal of fixed-income assets, but investors were reluctant to make major moves ahead of a Bank of Japan policy decision later in the session.

* The BOJ is expected to maintain the status quo at the conclusion of its two-day policy meeting, as it continues to monitor the impact of easing steps it took at last month's meeting.

* Ten-year JGB futures ended morning trade down 0.07 point at 144.10, moving away from an eight-week high of 144.33 hit on Wednesday.

* In cash bond trading, the current 10-year note was untraded. Two older issues traded down, with the yield on issue number 324 adding one basis point to 0.750 percent and that on issue number 323 also adding a basis point, to 0.745 percent.

Benchmark yields hit an eight-week low of 0.755 percent on Tuesday and Wednesday.

* The superlong sector underperformed, with the 20-year yield and the 30-year yield both adding 1.5 basis points to 1.660 percent and 1.915 percent, respectively.

* "It's quiet among domestic investors despite the start of new fiscal half-year and a new quarter as well. Sometimes, a new period starts with profit-taking, and if there's nothing to take profits on, it starts with accumulating bond positions in this kind of environment," said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.

However, such accumulation has begun slowly against the current backdrop, she said.

"The views are quite divided among domestic investors and dealers. It doesn't meant they can't take either direction, but rather, some were expecting more of a rise in yields from autumn onward, but then there was heightened concerns about the global slowdown," said Shimizu.

* Sapping demand for safe-haven assets, signs of progress have emerged in Europe's debt crisis. On Thursday, European Central Bank President Mario Draghi said, after the ECB helped policy steady, that the bank has a "fully effective backstop mechanism in place" to buy the bonds of troubled euro zone states such as Spain when they request aid.

* But even as the euro zone worked toward alleviating the burden of debt-burdened countries, investors also fretted about the fallout on global growth, which has kept JGB yields from rising much.

* "In the case of JGBs, there is the problem of a possible slowdown in China affecting Japan's economic fundamentals," said Arihiro Nagata, head of foreign bond trading at Sumitomo Mitsui Banking Corp.

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