Ten-year JGB yield falls to near-decade low on BOJ chief's remarks

Tue Mar 26, 2013 2:46am EDT

Related Topics

* Ten-year futures vault record highs in active trade

* Both 20- and 30-year yield also touch near-decade trough

By Dominic Lau

TOKYO, March 26 (Reuters) - Yields on benchmark 10-year Japanese government bonds fell to a near-decade low for a fourth straight day after Bank of Japan chief Haruhiko Kuroda said buying longer-dated debt was a policy option to pursue monetary easing.

Buying in the longer-dated sectors by pension funds and life insurers ahead of Japan's fiscal year-end on March 31 also helped flatten the yield curve earlier in the session, although yields on the 20- and 30-year sectors turned higher in the afternoon.

Kuroda, who became BOJ governor last week, told parliament that extending the duration of JGBs the central bank targets to five years, from the current three years, to ease monetary policy would be among future policy options.

The 10-year yield fell 1.5 basis points to 0.540 percent after earlier dropping to 0.525 percent, its lowest level since June 2003.

Ten-year futures hit a record high of 145.95. They ended 0.12 point higher at 145.79, and trading volume hit the highest in two weeks, with 29,069 contracts changing hands.

"Demand in trust banks and lifers should be temporary in nature. If this demand disappears after the fiscal year begins, then JGB yields might see some rebound," said Yuya Yamashita, rates strategist at J.P. Morgan in Tokyo.

"Still, it will depend on how much the BOJ will buy after April. But as long as the amount of the JGB purchases is limited to the prior market consensus, and if the seasonal demand for lifers and trust banks disappears, the JGB yields will rebound."

The BOJ is scheduled to hold its next policy-setting meeting on April 3 and 4.

The 20-year yield added 1.5 basis point to 1.455 percent. Earlier in the day, it fell to 1.410 percent, a near-decade low. It dropped 17 basis points in the previous five sessions.

The 30-year yield put on 2 basis points to 1.575 percent, snapping a streak of six daily falls. Earlier in the session, it slipped to 1.545 percent, its lowest level since July 2003.

Still, the 30-year yield is down 40 basis points so far this year, while the 20-year yield has eased 30 basis points.

"We see growing risk of backlash steepening by the 10-year-plus sector due to the prospect of pension rebalancing peaking out this week," Royal Bank of Scotland wrote in a note.

"While it is difficult to short the 10-year-plus sector while there is possibility of 20-30-year yields dropping to about 1 percent, assuming the Bank of Japan adopts aggressive easing action of purchasing 10-year-plus JGBs at a pace of 1 trillion yen per month, we advise investors to hold smaller long positions."

The five-year yield was unchanged at 0.120 percent, not far from its record low of 0.095 percent.

The spread between five- and 10-year yield fell to 42 basis points, its narrowest since October 2008.

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