JGBs ease ahead of auction, but supported by BOJ hopes

TOKYO Tue Feb 19, 2013 9:31pm EST

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TOKYO Feb 20 (Reuters) - Japanese government bond prices eased on Wednesday ahead of a 20-year JGB auction the following day and on a rally in Japanese share prices, but expectations of aggressive monetary easing by the Bank of Japan kept the five-year yield near its record low.

* Selling centred on the 20-year sector, ahead of the auction of 1.2 trillion yen ($12.8 billion) 20-year JGBs on Thursday.

* The 20-year yield rose 1.0 basis point to 1.750 percent , though market players say it is a healthy correction after the yield fell as much as six basis points during the past seven sessions.

* Most market players expect the auction to be underpinned by solid demand as investors look to tap the long end of the yield curve with short-term bond yields near zero.

* The 10-year yield rose 0.5 basis point to 0.740 percent , from a 3-1/2-week low of 0.730 percent hit on Tuesday.

* The five-year yield rose 0.5 basis point to 0.135 percent , from a record low of 0.130 percent set on Tuesday on expectations that the Bank of Japan will soon start buying five-year bonds.

* The minutes of the Bank of Japan's policy meeting showed on Tuesday a few members of the nine-member board considering extending the duration of government bonds purchased to around five years from the current limit of up to three years.

* With the BOJ under heavy pressure from Prime Minister Shinzo Abe to take aggressive easing steps, many investors expect the BOJ to soon include five-year bonds in its asset purchase scheme.

*"It's almost seen as a done deal in the market," said Takeo Okuhara, fund manager at Daiwa SB Investments. "And because everyone now thinks the five-year yield will be almost fixed (near zero), they are starting to feel it's safe to buy the seven-year zone and even longer."

* Still, the rise in Japanese share prices hampered fund inflows to JGBs for now. The Nikkei share average rose 0.9 percent to a 52-month high.