Benchmark JGBs erase losses; curve steepens on Abe expectations
TOKYO, Jan 11 (Reuters) - Benchmark Japanese government bonds recovered from an early dip on Friday on bargain hunting by regional banks, while the yield curve steepened on growing expectations that the new government under Prime Minister Shinzo Abe will push the Bank of Japan to ease further. * Abe said in an interview in the Nikkei newspaper published on Friday that the BOJ should consider maximising employment as a monetary policy goal to help boost the economy. His remarks helped take the yen to a 2 1/2-year low against the dollar of 89.35 yen, which in turn bolstered the Nikkei stock average more than 1 percent, and took away some of the appeal of safe-haven fixed income assets. * But expectations of easier monetary policy underpinned shorter and medium-term maturities, with the 5-year JGB yield skidding two basis points to 0.170 percent. In April 2012, the BOJ extended the remaining maturity of JGBs to be purchased under its asset buying programme to up to three years, from its previous limit of up to two years. Expectations of more central bank buying have effectively anchored rates of shorter maturities. * The BOJ will consider easing monetary policy again at its Jan. 21-22 meeting, likely by increasing its 101 trillion yen asset buying and lending programme, according to sources familiar with the central bank's thinking. * "As long as the BOJ keeps its easy policy, there is little risk in holding 5-year notes," said a fixed-income fund manager at a Japanese asset management firm. * By contrast, the yields on 30-year bonds added 1.5 basis points to 2.015 percent after hitting a morning high of 2.025 percent, its highest since August 2011. The yield on the 20-year bond was flat at 1.790 percent, off an intraday high of 1.805 percent, its highest since April 2012. * Expectations for more easing were also fuelled by data on Friday showing Japan posted a current account deficit of 222.4 billion yen ($2.5 billion) in November, the first deficit in 10 months and far larger than economists' median forecast. * On Friday, the Japanese government approved a 10.3 trillion yen economic stimulus package. A government official said it will sell around 5 trillion yen more bonds than originally planned for the current fiscal year to fund it. * The 10-year JGB yield was flat at 0.820 percent, after matching a 4-1/2 month high of 0.840 percent hit on Monday. The benchmark 10-year JGB futures contract ended morning trade up 0.20 point at 143.66.
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