JGBs gain, 10-year yield stays at near-decade low

TOKYO, March 27 Tue Mar 26, 2013 10:43pm EDT

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TOKYO, March 27 (Reuters) - Japanese government bond prices gained on Wednesday with the yield on benchmark 10-year debt at a near-decade low on expectations that the Bank of Japan will soon buy longer-dated paper to revive the economy.

BOJ Governor Haruhiko Kuroda told parliament on Tuesday that the central bank will seek to push down market interest rates by buying longer-dated JGBs among future policy options. The central bank will hold its next policy-setting meeting on April 3 and 4.

The 10-year yield slipped 1.5 basis points to 0.525 percent, matching its lowest level since June 2003 reached on Tuesday.

Ten-year JGB futures added 4 ticks to 145.83 after touching a record high of 145.95 in the previous session.

"The market is slightly overpriced. The market may touch 50 basis points in the near future because of the BOJ purchases," a fixed-income fund manager at a Japanese asset management firm in Tokyo said.

Still, he said he expected next Tuesday's auction of 2.4 trillion yen ($25.5 billion) worth of 10-year bonds would meet decent demand.

"Final investors will not participate. Probably primary dealers will cover their shorts. The auction may be supported," he said.

"But the point is that I don't think final investors can accept 50 basis points for 10-year bonds. It's too low. Kuroda is declaring an inflation target of 2 percent. Obviously, it's a contradiction."

The 20-year yield eased 1 basis point to 1.450 percent, hovering near its near-decade low of 1.410 percent hit in the previous session.

The 30-year yield, however, underperformed, adding 1.5 basis points to 1.605 percent, further backing off its near-decade trough of 1.545 percent tugged on Tuesday.

"I don't think the main buyers (of the superlong sectors), the life insurance companies, can accept these levels," the fund manger said.

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