JGBs mostly flat, superlongs solid ahead of auction

TOKYO Tue Feb 12, 2013 10:05pm EST

TOKYO (Reuters) - Japanese government bonds were mostly flat on Wednesday though longest maturities held firm on expectations that an ongoing auction of 40-year JGBs will attract solid demand.

The immediate focus is on a quarterly auction of 400 billion yen ($4.25 billion) 40-year JGBs. The Ministry of Finance on Wednesday reopened the 40-year bonds maturing March 2052. The auction closes at noon (0300 GMT) and the result will be announced at 12:45 p.m. (0345 GMT).

Market players expect solid demand for the new offer as a sharp fall in short-term notes yield in the past couple of weeks has made long-dated bonds relatively more attractive.

The current 40-year bonds were yielding 2.14 percent, down 1.0 basis point on the day while the yield of the more liquid 30-year bonds also dipped 1.0 basis point to 1.960 percent.

Still, the yield spread between 30- and five-year bonds stood at 182.5 basis points, near a seven-year high of 186.5 hit last week.

The five-year yield held at 0.135 percent, matching the record low on expectations that the Bank of Japan will continue to pursue aggressive easing steps to shore up the economy.

"Given strong expectations of bold monetary easing, short-term yields are likely to stay at current low levels for some time," said Katsutoshi Inadome, strategist at Mitsubishi UFJ Morgan Stanley Securities.

The yield on the 10-year cash JGBs stood flat at 0.745 percent while the 10-year JGB futures price rose 0.03 point to 144.33.

(Reporting by Hideyuki Sano; Editing by Shri Navaratnam)