JGBs mostly steady, superlongs slip on Japan fiscal concern

Wed Nov 7, 2012 1:53am EST

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* 10-yr futures rise, touch intraday high after Obama win predicted

* 10-yr, 30-yr yield spread hits highest since March 2008

By Lisa Twaronite

TOKYO, Nov 7 (Reuters) - Benchmark Japanese government bonds were steady on Wednesday after U.S. President Barack Obama won a second term in office in line with expectations, but the superlong sector lagged on concerns over Japan's fiscal problems.

Obama beat Republican challenger Mitt Romney after a long and bitter campaign, in a victory that was generally viewed as supportive for the bond market.

JGB futures hit their intraday high around the time the yen jumped against the dollar as U.S. television networks projected Obama's win. His re-election made it more likely that the U.S. Federal Reserve will maintain its commitment to easy policy through mid-2015.

Ten-year JGB futures ended up 0.03 point at 144.33, solidly above their 5-day moving average as well as their 20-day moving average, now at 144.20 and 144.17 respectively, and moving back toward a three-month high of 144.47 touched last week. They hit an intraday high of 144.43.

Volume was a moderate 31,678 contracts, up from 20,817 in the previous session and recovering from Monday's four-month low of 11,992 contracts.

The 10-year yield added half a basis point to 0.760 percent, up from 0.755 percent after the projection of the election results, which was flat with their close on Tuesday.

"Generally, it was expected that Obama's victory would be supportive for bonds and could lead to selling of the dollar and equities," said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.

"The U.S. election will not change the ongoing trend in Japan, meaning the bond market here will likely stay in consolidation, with the 10-year supported by its carry advantage, while demand for the superlong tenor will be weaker because their lack of absolute yield levels as well as fiscal policies going forward and political risks," she said.

On Japan's own political front, main opposition leader Shinzo Abe said on Wednesday that the Bank of Japan should continue monetary easing until it achieved 3 percent inflation, signalling the central bank could come under more political pressure after the next general election.

The BOJ set a 1 percent inflation target in February and has boosted its asset-buying programme four times this year, most recently last week.

Abe's Liberal Democratic Party (LDP) has been pressing Prime Minister Yoshihiko Noda to call an early election.

"With the event risk of the U.S. election over, the JGB market will turn some of its attention back to domestic politics again, with the timing of the election in focus," said a fixed income fund manager at a Japanese asset management firm.

"Domestic fiscal and political concerns will continue to weigh on longer maturities," he added.

The yield curve steepened slightly as the superlong sector underperformed. Yields on 30-year bonds added 1.5 basis points to 1.950 percent, while yields on 20-year debt rose 1 basis point to 1.690 percent.

The spread between 10-year and 30-year yields rose to 1.19 percentage points, matching a level hit last month on a last-traded basis, which was its widest since March 2008.

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