JGBs rise a day after strong 10-yr sale, tracking Treasuries

TOKYO Tue Dec 4, 2012 10:24pm EST

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TOKYO Dec 5 (Reuters) - Japanese government bond prices rose on Wednesday, after a 10-year debt sale a day earlier attracted strong demand and U.S. Treasuries firmed overnight.

* The 10-year JGB futures contract ended morning trade up 0.07 point at 144.94, after touching a 9 1/2-year high of 144.98. Futures inched closer to their record high of 145.09, reached in June 2003.

* The yield on the current 10-year cash bond slipped 1 basis point to 0.715 percent. The new issues sold at Tuesday's sale carried a 0.70 percent coupon, the lowest rate for 10-year paper since June 2003, but they still met strong demand.

* "What do you do in a market like this? Short-term yields are too low, so investors buy 10-year debt," said a fixed-income fund manager at a Japanese asset management firm.

"Ahead of Japan's election, and with the U.S. fiscal deadlock keeping Treasuries well-bid, we can't expect much movement in JGBs," he said.

* The five-year yield slipped half a basis point to 0.165 percent, matching a nine-year low.

* Japan's election on Dec. 16 is likely to usher in a new government. Shinzo Abe, leader of the main opposition Liberal Democratic Party (LDP) is the front-runner to be Japan's next prime minister and has called on the Bank of Japan to take more drastic easing steps. His suggestions included setting an inflation target of 2 percent, embarking on "unlimited easing", or even cutting interest rates to zero or below.

His proposals have lifted demand for short- and medium-term JGBs, while the yield curve has steepened as the superlong sector underperformed on fears the easing will lead to inflation.

* The 20-year yield as well as the 30-year bond yield both slipped half a basis point on Wednesday to 1.680 percent and 1.945 percent respectively.

Market participants say pressure is likely to resume on longer-dated maturities ahead of Thursday's auction of 700 billion yen 30-year bonds.

* U.S. Treasuries prices firmed overnight amid concerns about the U.S. budget deadlock. President Barack Obama proposed on Tuesday that tax rates could be lowered in 2013 with a broad U.S. tax code overhaul, but stood firm on insisting rates for the wealthiest must rise as part of a budget deal with Congress.

In a possible sign of progress, Republican leaders kicked two of the most conservative members off the House Budget Committee on Tuesday, which was perceived as a move to advance a deal with Democrats to cut the federal deficit.

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