JGB futures, 20-yr bonds firm but trading subdued ahead of BOJ

Sun Jan 20, 2013 10:11pm EST

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TOKYO, Jan 21 (Reuters) - Japanese government bond futures
rose as stocks slumped on Monday while bargain-hunting lifted
the 20-year zone, but cash trading was extremely thin as
investors awaited Tuesday's outcome of the Bank of Japan's
meeting which is expected to yield aggressive policy easing. 
    
    *  Sources told Reuters that Japan's government and the BOJ
have agreed to set 2 percent inflation as a new target, and the
central bank will also consider making an open-ended commitment
to buy assets until the target is in sight. 
  The central bank will also discuss scrapping the interest it
pays on banks' reserves, according to the sources, a move that
would push money market rates to zero. 
   Positioning for the possibility of such a move has pushed
down yields of shorter maturities, with the 2-year JGB yield
 losing half a basis point to 0.070 percent on
Friday, its lowest since July 2005.
    
    * "Everybody's waiting for the BOJ's decision tomorrow,"
said Naomi Muguruma, a senior fixed-income strategist at
Mitsubishi UFJ Morgan Stanley Securities.
    
    * Also on Tuesday, the Ministry of Finance will hold some of
its regular periodic meetings with primary JGB dealers.
    "I think the main topic should be fiscal year '13 budget
formation and JGB issuance schedule," said Muguruma. "The timing
is not related to the BOJ meeting, it's that the government at
the end of last week is mostly done with fiscal year '13 budget
blueprint."
        
    * The 10-year JGB futures contract ended morning
trade up 0.15 point at 144.40, moving toward Thursday's intraday
high of 144.50, which was its highest since Dec. 13.  
    Japan's Nikkei share average slipped more than 1
percent on Monday, after marking its biggest one-day gain in
nearly two years on Friday to a 32-month high.    
    
    * In the superlong tenor, 20-year bonds also rose, their
yield shedding 2 basis points to 1.745 percent,
with pension funds said to be buying.
    
    * Other maturities were untraded. In addition to wariness
ahead of the BOJ outcome, the scheduled closure of U.S.
Treasuries trading on Monday also keep debt trading subdued.
U.S. financial markets will close on Monday in observance of
Martin Luther King Jr. Day. 
        
    * A weekly gauge of sentiment in the Japanese government
bond market slightly deteriorated in the latest week but
remained supported by expectations of more BOJ easing steps, the
latest Reuters poll showed on Monday.
     The median forecast for the benchmark 10-year JGB yield at
the end of this week came in at 0.770 percent, 2
basis points above Friday's closing level of 0.750 percent
.
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