JGBs drop as yen weakens, stocks rise on easing expectations

TOKYO Wed Nov 21, 2012 10:23pm EST

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TOKYO Nov 22 (Reuters) - Japanese government bonds slipped on Thursday, as growing expectations of aggressive stimulus by a possible new government after next month's election continued to pressure the yen and push up equities, weighing on bonds.

* The 10-year JGB futures contract ended morning trade down 0.01 point at 144.55, on track for its fourth session of losses, and moving away from a nine-year high of 144.73 hit on Friday.

* In cash trading, yields on 10-year notes rose 1 basis point to 0.740 percent.

* "The forex markets and stock markets are reacting to the Japanese political situation, but the reaction in the bond market has been understated by comparison, with many investors sidelined until next month's election," said a fixed-income fund manager at Japanese asset management firm.

* The ruling party is expected to lose support to the main opposition Liberal Democratic Party at the Dec. 16 election. On Wednesday, the LDP revealed a platform calling for a big extra budget and a policy accord with the Bank of Japan for aggressive monetary stimulus.

* The BOJ held off on any additional monetary steps at its latest policy meeting on Tuesday, as expected.

* The yen fell to a 7-1/2-month low versus the dollar on Thursday, lifting the Nikkei share average to a six-month high.

* Open interest on the benchmark JGB futures contract this week has risen to its highest levels since early June, which suggests market participants are building up positions ahead of the election.

* Yields on 20-year debt rose 1 basis point to 1.685 percent, while 30-year bonds were untraded after their yield settled at 1.945 percent on Wednesday.

* Japanese markets will be closed for a holiday on Friday.

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