JGBs supported, futures within sight of 9-year high

TOKYO Sun Nov 11, 2012 9:25pm EST

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TOKYO Nov 12 (Reuters) - Japanese government bond prices held firm on Monday, with the benchmark futures contract staying within sight of their nine-year high hit in July on fear the political deadlock over the "fiscal cliff" that could plunge the U.S. economy into recession.

* The 10-year JGB futures ticked up 0.02 point to 144.58 , within a whisker from their day session peak hit in July of 144.64, which was their second highest peak after the record high of 145.09 set in 2003.

* The yield on the current 10-year cash bonds was flat at 0.730 percent, matching last week's low and near nine-year low of 0.720 percent hit in July.

* "It is hard to expect a clear-cut solution to the fiscal cliff and long-term bond yields will likely stay under pressure. The 10-year yield will get closer to 0.7 percent," said Naomi Muguruma, senior strategist at Mitsubishi-UFJ Morgan Stanley Securities.

* After the elections last week left the balance of power in Washington largely unchanged - the White House and the Senate under Democrat control and the House of the Representatives controlled by the Republicans - investors are focusing on whether U.S. policymakers can take measures to ease automatic spending cuts and expiring tax cuts due next year.

* Worth about $600 billion in total, this sharp fiscal tightening, unless modified, is threatening to push the U.S. economy into recession, the last thing Japan needs as its own economy is quickly losing momentum.

* Japan's deteriorating economic fundamentals, highlighted by Monday's GDP data, also support bonds. Japan's economy shrank 0.9 percent, or an annualised 3.5 percent, in the three months to September.

* The 20-year bond yield was steady at 1.650 percent while the 30-year yield was also flat at 1.910 percent.

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