JGBs slip slightly as FOMC awaited for U.S. easing clues

Wed Jan 30, 2013 1:44am EST

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* 10-yr yield now 5 bp above last week's 6-week low
    * Superlong tenor still supported by life insurance
demand-strategist

    TOKYO, Jan 30 (Reuters) - Japanese government bonds inched
lower on Wednesday, in line with U.S. Treasuries ahead of the
outcome of the U.S. Federal Reserve's two-day meeting later in
the session.    
    Investors will parsing the Fed's policy statement for any
signals on when it might curb its bond buying.
    Any further suggestion that the U.S. central bank could pare
back or end its latest round of quantitative easing before the
close of 2013 could lead to a sell-off in Treasuries, which
would in turn likely push JGB yields higher.
     In Asian trade on Wednesday, the yield on 10-year
Treasuries rose as high as 2.021 percent, its
highest since April last year. 
    The 10-year JGB yield added half a basis
point to 0.770 percent, moving 5 basis points above a six-week
low of 0.720 percent hit last week.   
    "There's a lack of market movers. Basically, it's more or
less a function of U.S. Treasuries, at this point," said Le Ngoc
Nhan, a strategist at Morgan Stanley MUFG Securities in Tokyo. 
    "If market sells off further, the far back end of the curve
should be well-supported by life insurers. There's still demand
there," he said, and added that he recommends 7-/10-year
steepener positions.
    
    The 10-year JGB futures contract ended down 0.02
point at 144.05, after moving in a relatively narrow range
between 143.98 and 144.13.     
    "It's hard to move much in a market like this," said a
fixed-income fund manager at a European asset management firm.  
 "When moves are very small, it's sometimes not even worth the
trading costs," to take positions hoping to gain on market
movements, he said.
    Superlong maturities were slightly weaker, as investors
digested the government's issuance plan for fiscal 2013 JGB
issuance. The plan, released late on Tuesday, was mostly in line
with market expectations.
    Japan will issue a record 156.6 trillion yen ($1.73
trillion) of JGBs through regular auctions in the fiscal year
from next April, including 42.8 trillion yen of bonds to finance
spending. 
    The finance ministry will also auction 600 billion yen of
consumer price-linked bonds next fiscal year due to interest
from overseas investors, but it has yet to decide the auction
schedule. 
    Because of the large supplementary budget for the fiscal
year through March, "calendar-basis JGB issuance will increase
to a record high, and concerns over fiscal reform remain," Bank
of America Merrill Lynch said in a note to clients.        
    The 20-year yield added 1 basis point to
1.785 percent, and the 30-year bond yield rose
half a basis point to 2.000 percent. 
    Japanese Prime Minister Shinzo Abe said on Wednesday that
revising the Bank of Japan law could be an option in the future,
keeping up pressure on the bank to make good its pledge to
achieve a 2 percent inflation target.
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