Benchmark JGBs inch down as investors lock in gains

TOKYO Thu Dec 6, 2012 9:45pm EST

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TOKYO Dec 7 (Reuters) - Benchmark Japanese government bonds slipped on Friday, as some investors locked in gains after a rally in the previous session on heightened monetary easing expectations sent 10-year yields to a 9 1/2 year low.

* The superlong sector outperformed, with 30-year bonds rising after the previous day's auction of that maturity met strong demand.

* Ten-year JGB futures ended morning trade flat at 145.22, with the contract inching up to an intraday record high of 145.26. Thursday's close was the highest ever for 10-year futures.

* Thursday's rally came after Japanese media polls showed the opposition Liberal Democratic Party is on track to secure a majority in Japan's Dec. 16 election. LDP leader Shinzo Abe has called for more aggressive stimulus from the Bank of Japan.

Abe's suggestions included setting an inflation target of 2 percent, embarking on "unlimited easing", and cutting interest rates to zero or below.

* Yields on 10-year JGBs added half a basis points to 0.690 percent. On Thursday, they fell to 0.685 percent, their lowest level since June 2003.

* "Abe's ideas first led to buying of short- and medium-term JGBs, while the superlongs sold off, but they cheapened to a point where Thursday's sale drew buying interest," said a fixed-income fund manager at a Japanese trust bank.

* Yield on 30-year JGBs fell 1 basis point to 1.880 percent, after earlier dropping as low as 1.875 percent, their lowest level since Sept. 27. On Thursday, 30-year yields fell 5.5 basis points.

The 20-year yield was flat at 1.640 percent.

* The yield curve flattened, pushing the spread between 10- and 30-year yields down to 119 basis points from 125.5 points on Tuesday, which was its highest level since early 2008.