JGBs soar on expectations of aggressive BOJ easing under Kuroda

Sun Feb 24, 2013 10:31pm EST

* 5-yr yield at record low after reports Kuroda to head BOJ

* Rinban bond purchases could be increased

* 10-yr futures end morning at nearly 11-week high

TOKYO, Feb 25 (Reuters) - Japan government bonds rose on Monday, with the benchmark yield dropping to near an 11-week low and the five-year yield plumbing a fresh record nadir after sources said monetary easing advocate Haruhiko Kuroda will be tapped as central bank chief.

Kuroda, president of the Asian Development Bank, has long criticised the Bank of Japan as too slow in expanding stimulus, so he would be expected to push more radical efforts to achieve its 2 percent inflation target set in January.

These measures could include increasing the central bank's bond-buying "rinban" operation, through which it buys 21.6 trillion yen ($231.7 billion) worth of JGBs per year. Rinban is separate from the BOJ's asset-purchase programme, under which it only buys bonds with up to three years left to maturity.

"The market reacted with a bull-flattening bias early in the morning session. It seems the market has started to price in more for an increase in the rinban operations," said Tomohisa Fujiki, interest rate strategist for BNP Paribas in Tokyo.

The prospect for more aggressive purchasing of longer-term bonds helps explains why gains were not confined to the short- and mid-term sectors of the yield curve, he said

In addition to the Kuroda developments, Japanese academic Kikuo Iwata, an advocate of unorthodox monetary easing steps to beat deflation, said he had been sounded out by Prime Minister Shinzo Abe for the post of deputy BOJ governor and would accept if nominated.

"Mr. Iwata is more for buying longer bonds, so let's see," Fujiki said.

The yield on 10-year bonds shed 2 basis points to 0.705 percent after earlier falling to 0.700 percent, its lowest since Dec. 12.

Ten-year JGB futures ended the morning session up 0.18 point at 144.68, after rising as high as 144.72, their highest since Dec. 11.

The five-year yield dropped 1 basis point to 0.120 percent, the lowest recorded since Japan started issuing 5-year bonds in 2000, on expectations the BOJ will eventually increase the time left to maturity of JGBs bought in its asset purchase programme.

The 30-year yield fell 1 basis point to 1.905 percent after dropping as low as 1.890 percent. The 20-year yield slipped half a basis point to 1.715 percent after dropping to 1.705 percent earlier, its lowest since Dec. 21.

A weekly gauge of sentiment in the Japanese government bond market turned positive for the first time in eight weeks, bolstered by expectations of more BOJ easing, the latest Thomson Reuters poll showed on Monday.

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