Benchmark JGBs erase losses; curve steepens on Abe expectations

Thu Jan 10, 2013 10:11pm EST

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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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