* 10-yr futures slip but end above 5-day moving average
* Megabanks were net sellers of longterm JGBs in Oct-JSDA
By Lisa Twaronite
TOKYO, Nov 20 (Reuters) - Benchmark Japanese government bonds were steady on Tuesday after the Bank of Japan held off from additional monetary easing, in line with expectations, while the yield curve flattened as bargain hunters mined the recently battered superlong tenor.
The BOJ stood its ground in the face of calls from the country's likely next prime minister to pursue "unlimited" easing to revive an economy widely seen in recession.
JGBs have been pressured by political concerns since last week. Japanese Prime Minister Yoshihiko Noda dissolved parliament on Friday for an election on Dec. 16, at which his ruling party is expected to lose support, according to the latest opinion polls.
"There was some speculative selling, after Noda announced he was dissolving the Diet, but we don't have any longterm or superlong-term supply until the Dec. 4 10-year JGB auction," said Naomi Muguruma, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley.
"So supply/demand conditions, excluding event risks such as political conditions, should be good," she added, with month-end buying to extend the duration of portfolios expected to emerge next week.
The last JGB market data from the Japan Securities Dealers Association showed that Japanese megabanks were significant net sellers of longterm JGBs in October, while insurers' purchases were steady and regional banks were net buyers.
"It's kind of a seasonal pattern that megabanks sold JGBs at the beginning of each fiscal half, and this time as well, and it seems local banks are trying to build JGB portfolios because they failed to do so in the fiscal first half because yield levels continued to decline," said Muguruma.
The 10-year JGB futures contract briefly turned positive in the afternoon session but ended down 0.01 point at 144.61. It moved away from a nine-year high of 144.73 hit on Friday but still held above support at the 5-day moving average, now at 144.59.
In cash trading, 10-year yields were flat at 0.730 percent after rising as high as 0.740 percent in the morning. Benchmark yields are holding above support at the nine-year low of 0.720 percent hit in July.
The superlong sector edged higher. Yields on 20-year debt slipped 1 basis point to 1.665 percent and those on 30-year bonds shed 1.5 basis points to 1.930 percent.
Shinzo Abe, leader of the main opposition Liberal Democratic Party and likely Japan's next prime minister, has suggested revising the BOJ law, and calling on the central bank to directly underwrite bonds issued to fund public works spending.
The LDP is likely to include in its campaign platform a pledge to consider revising a law guaranteeing central bank independence, the Nikkei newspaper reported on Tuesday.
"Abe's remarks in recent days caused the yield curve to steepen as the superlong maturities dropped on concern about what is to come," said a fixed-income fund manager at a European asset management firm in Tokyo.
"We expect the curve to stay steep, but perhaps not much beyond current levels, because recent superlong auctions confirmed that there is still demand from domestic investors for longer maturities," he said.
Investors remained mixed as to what the BOJ will do at its next rate review on Dec. 19-20, just days after the election, with some analysts seeing a good chance the central bank will boost stimulus.