JGBs steady to slightly firmer, curve flattens further

TOKYO Mon Nov 26, 2012 10:03pm EST

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TOKYO Nov 27 (Reuters) - Japanese government bond prices were steady to slightly firmer on Tuesday, with the longest maturities well-bid on the unwinding of the steepening trade that became popular after Japanese Prime Minister Yoshihiko Noda called an election.

* Ten-year JGB futures ticked up 0.02 point to 144.62 while the benchmark 10-year cash JGB yield stood flat at 0.730 percent, with investors reluctant to test the nine-year low of 0.720 percent hit in July.

* Expectations of month-end buying by pension funds supported the market, but traders were unwilling to test recent yield support of 0.720 percent either, partly on caution ahead of the 10-year bond auction next Tuesday.

* The longest end of the JGB yield curve outperformed for the second day in a row, as steepening bets that became popular after Noda said he would dissolve parliament about two weeks ago were unwound on profit-taking.

* Expectations that main opposition party leader Shinzo Abe, seen as a front-runner to become prime minister after an election next month, will push for radical monetary easing had undermined "superlongs" such as 20-, and 30-year bonds.

* The 30-year bond yield fell 0.5 basis point to 1.930 percent, its lowest in a week. The 20-year bond yield also fell 0.5 point to 1.665 percent.

* The spread between 10- and 20-year yields dipped to 93.5 basis points from a 13-year high of 95.0 basis points hit last week on so-called "Abe trade" -- bets on a radical easing by the Bank of Japan.

* Still, with Japan's election on Dec. 16 still a few weeks away, the market may shift its focus back to global issues especially the U.S. fiscal cliff, market players said.

* "I think the 'Abe trade' has run its course for now. Globally bonds will likely be in a holding pattern for the time being, given that U.S. policy makers haven't set schedule for their next talk on fiscal cliff," said Tohru Yamamoto, chief bond strategist at Daiwa Securities.

* The market hardly reacted after Greece's international lenders clinched an agreement on reducing the country's debt, as many investors had been expecting policymakers to eventually agree on a deal to avoid Athens defaulting on its payments.

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