Benchmark JGBs erase gains; BOJ easing expectations lend support
* Longer maturities remain firm, with 30-year sale in focus * MOF to meet with JGB investors, primary dealers on Thurs By Lisa Twaronite TOKYO, Jan 9 (Reuters) - Benchmark Japanese government bond prices backed away from earlier gains on Wednesday, with yields creeping back towards a 4-1/2-month high struck this week, as stocks pushed higher and took away some of the appeal of fixed-income assets. But expectations of more easing by the Bank of Japan underpinned sentiment, and the recently battered superlong tenor held up on bargain hunting even before a 30-year sale scheduled for Thursday. The BOJ will consider easing monetary policy again at its Jan. 21-22 meeting as it eyes doubling its inflation target. Any easing will likely take the form of another increase in its 101 trillion yen ($1.2 trillion) asset buying and lending programme, mostly for purchases of government bonds and treasury discount bills, according to sources familiar with BOJ thinking. Robust demand at the previous session's 10-year JGB sale also underpinned sentiment, market participants said. "For sure, I think sentiment is turning positive right now," said Le Ngoc Nhan, a strategist at Morgan Stanley MUFG Securities in Tokyo. "But I wouldn't bet on a (10-year JGB) rally back to 70 basis points, where we were before this sell-off started. I don't think we'll go back to that level again," he said. Benchmark yields dropped as low as 0.685 percent on Dec. 6, their lowest level since June 2003. Nhan said he still forecasts the 10-year yield will gradually rise to 0.95 percent by the end of March. On Wednesday, the 10-year JGB yield inched up half a basis point to 0.825 percent, moving back towards Monday's high of 0.840 percent, after dropping as low as 0.810 percent earlier in the session. The benchmark 10-year JGB futures contract ended flat at 143.43, after rising to a session high of 143.67 in the morning. JGBs took some direction from equities markets, with the Nikkei share average bolstered by hopes of aggressive easing by the BOJ later this month. The Nikkei has rallied nearly 22 percent over the past two months, and added another 0.7 percent on Wednesday. Longer maturities, recently under pressure amid concerns about the new Japanese government's aggressive reflationary stance, firmed on Wednesday. The Ministry of Finance is scheduled to hold regular meetings with JGB investors and primary dealers on Thursday, to discuss how it will allocate this year's additional issuance of JGBs. "I think the market consensus is that the Ministry of Finance needs to issue maybe 7 to 8 trillion yen in additional JGBs," said Naomi Muguruma, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. Investors are concerned that the superlong tenor will bear the brunt of the new issuance, which pushed up the yield curve towards the end of last month. But some bargain hunters overcame these concerns, particularly when the 30-year yield rose above 2 percent on Tuesday for the first time since December 2011. Yields on 20-year bonds gave up 1 basis point to 1.785 percent, while those on 30-year bonds fell 1 basis point to 2.00 percent.
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