Longer-dated JGBs dip ahead of 30-year sale; 10-year steady

TOKYO Wed Oct 10, 2012 10:45pm EDT

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TOKYO Oct 11 (Reuters) - Longer-dated Japanese government bonds slumped on Thursday ahead of a 30-year sale that was expected to meet firm demand in light of that sector's recent underperformance.

* The Ministry of Finance is offering 700 billion yen ($8.9 billion) of 30-year bonds with a coupon of 1.90 percent, matching that of the previous sale, which had drawn decent demand.

* "We are not expecting an eventful auction," said a fixed-income fund manager at a Japanese asset management firm.

"It would be very surprising if there was little demand at these levels, after superlongs have underperformed in recent weeks," he said.

* The yield curve has steepened this week ahead of the auction as investors sold to make room in their portfolios to buy at the auction.

The spread between the 10-year and 30-year yields rose to 1.17 percentage points on Thursday, its widest since March 2008.

* Yields on 30-year debt rose 1.5 basis points in cash trading to 1.940 percent, while those on 20-year bonds rose half a basis point to 1.660 percent.

* The benchmark 10-year yield was flat at 0.765 percent.

* Ten-year JGB futures ended morning trade up 0.03 point at 144.21, after trading in a narrow range between 144.19 and 144.24.

If futures' five-day moving average were to cross below the 200-day moving average, that might be a bearish technical signal. The five-day average is now at 144.16 and the 200-day average is at 144.12.

* "We continue to recommend buying 30-year asset swaps, which remain attractively cheap and appear likely to outperform in the event of JGB market selloffs," Morgan Stanley MUFG strategists said in a note to clients ahead of the 30-year sale.

They added that 30-year asset swaps offer around 1 basis point of carry over a half-year period, which would make them suitable for bearish positioning in the longer term.

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