JGBs edge lower as weaker yen helps lift equities

TOKYO Tue Nov 20, 2012 9:50pm EST

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TOKYO Nov 21 (Reuters) - Benchmark Japanese government bonds slipped slightly on Wednesday, as a weakening yen helped bolster Japanese shares and took away some of the appeal of fixed-income assets.

* JGBs have also been pressured by political concerns ahead of an election on Dec. 16, at which the ruling party is expected to lose support to the opposition Liberal Democratic Party

The LDP has pledged to set a 2 percent inflation target, media reported on Wednesday, to encourage the Bank of Japan to expand monetary stimulus more aggressively.

* "We aren't going to see much movement in JGBs until the election, and then we're getting into the year-end," said a fixed-income fund manager at a European asset management firm.

"There was a sell-off on the political fears and then some dip-buying, but yields remain in recent ranges," he said.

* The 10-year JGB futures contract ended morning trade down 0.08 point at 144.53, on track for its third session of losses and moving away from a nine-year high of 144.73 hit on Friday.

* Yields on 10-year notes rose in cash trading, adding 1 basis point to 0.735 percent.

Benchmark yields are holding above their nine-year low of 0.720 percent hit in July, but hit their high of 0.785 percent for the month so far on Nov. 1. They last traded above 0.800 percent in late September

* On Tuesday, the Bank of Japan held off from additional monetary easing, in line with expectations.

* The yen's fall to seven-month lows against the dollar on Wednesday heightened expectations Japan's central bank will be pushed into implementing more radical monetary easing.

The weaker yen and stimulus expectations helped lift the Nikkei share average to a two-month high.

* Trade data on Wednesday showed Japan's exports fell in annual terms for a fifth month in October, a further sign the economy has slipped into recession.

* The superlong sector also edged lower, with yields on 20-year debt and those on 30-year bonds both adding half a basis point to 1.670 percent and 1.935 percent respectively.

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