JGBs rise, tracking volatile stocks; 10-yr yield hits 1-month low

Thu Jan 17, 2013 2:20am EST

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* 10-yr futures touch highest since Dec. 13
    * Superlong bonds underperform but off last week's lows

    By Lisa Twaronite
    TOKYO, Jan 17 (Reuters) - Japanese government bonds rose on
Thursday as the stock market weakened for most of the session,
with the benchmark yield skidding to a one-month low.
    Rising expectations of Bank of Japan policy easing steps
next week also continued to bolster the market. 
    The BOJ will consider taking additional stimulus action,
most likely through an increase in its 101-trillion-yen ($1.1
trillion) asset-buying and lending programme, and doubling its
inflation target to 2 percent at its two-day meeting ending on
Tuesday, sources close to the central bank have said.
 
    But the BOJ is seen holding off on deploying some other new
initiatives under consideration, preferring to save them for
later as pressure from Prime Minister Shinzo Abe is likely to
persist. 
    "There's a possibility the BOJ is going to adopt 2 percent
inflation targeting, and given the history of CPI in the last
two decades, that would be a very difficult goal to achieve,"
said Le Ngoc Nhan, a strategist at Morgan Stanley MUFG
Securities in Tokyo. 
    "But if they achieved that, it would send a very strong
signal to markets, that the BOJ is going to stay on hold a lot
longer than current expectations," he said. 
    The 10-year JGB yield slipped 1 basis point
to 0.735 percent, after falling to an intraday low of 0.730
percent, its lowest since Dec. 17. 
    
    The 10-year JGB futures contract ended up 0.07
point at 144.38, extending its rising streak to five sessions
and rising as high as 144.50, its highest since Dec. 13 on
relatively heavy volume of 51,932 contracts.    
    Futures trading was volatile, tracking equities markets.
    The Nikkei stock average staged a dramatic recovery
late in the session, ending up 0.1 percent at 10,609.64 points
after trading as low as 10,432.97, after a media report quoted
Japan's economic minister as saying his remark on the yen early
this week was misinterpreted. That pushed up exporters' shares
before the closing bell. 
    The superlong sector slumped late in the session, giving
back some of this week's gains, though yields stayed off last
Friday's highs. 
    The yield on the 20-year bond added half a
basis point to 1.735 percent, moving back towards Friday's high
of 1.805 percent, its highest since April 2012.
    The 30-year bond yield rose 1 basis point to
1.970 percent, moving back toward Friday's high of 2.025
percent, its highest since August 2011.
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