JGBs rise on Cyprus bailout shock, 10-year yield near decade low

TOKYO, March 18 Sun Mar 17, 2013 11:59pm EDT

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TOKYO, March 18 (Reuters) - Japanese government bonds rose on Monday, pushing the benchmark 10-year JGB yield near 10-year lows, after the euro zone stunned investors by forcing Cypriot savers to take on some of the burden of the bailout of the financially-stricken island.

The 10-year JGB yield fell 2.5 basis points to 0.590 percent , just above a 10-year low of 0.585 percent hit on March 4.

In a radical departure from previous aid packages, euro zone finance ministers demanded Cyprus savers forfeit a portion of their deposits in return for a bailout, triggering a run at cash points in the Mediterranean island.

Investors reacted on Monday by selling riskier assets such as equities and stocks and moving into perceived havens such as the dollar and government bonds.

"Euro zone policymakers said Greece was an exception when investors took a hit for their bond holdings. But now we have a cut in deposits. If you have two exceptions, they look more like precedents," said Tohru Yamamoto, chief bond strategist at Daiwa Securities.

"Investors' money is likely to shift back to Germany in the euro zone again. It will be also hard to sell JGBs, even though no one really wants to buy JGBs at such low yields," he added.

The 10-year JGB futures also gained 0.24 point to 145.43 , hitting a record high of 145.46 during the trade.

JGBs were also helped by expectations that the Bank of Japan's new leadership will implement more aggressive easing, most likely by buying more, and longer-dated, JGBs.

This week will see a change of guard at the Bank of Japan, with Haruhiko Kuroda, a former top currency diplomatic who advocates unconventional easing, succeeding the current chief Masaaki Shirakawa on March 20.

Many investors expect a Kuroda-led BOJ to announce fresh easing steps at its first scheduled policy meeting on April 3-4.

The 20-year bond yield fell 3.5 basis points to 1.570 percent.

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