JGBs slip on BOJ uncertainty, curve steepens ahead of auctions

TOKYO, April 15 Sun Apr 14, 2013 10:51pm EDT

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TOKYO, April 15 (Reuters) - Japanese government bond prices mostly eased on Monday, as investors sought more clarity on the Bank of Japan's policy stance, while super-long maturities came under pressure the most ahead of a 20-year bond offering later in the week.

* The yield on the current 10-year JGB ticked up 0.5 basis point to 0.625 percent. At one point, it rose as high as 0.640 percent, its highest level in about a month.

* The yield has been rising since it had hit a record low of 0.315 percent on April 5, a day after the Bank of Japan unveiled an aggressive monetary easing plan.

* "The market simply cannot grasp what the BOJ is getting at," said Katsutoshi Inadome, fixed income analyst at Mitsubishi UFJ Morgan Stanley Securities.

* "What's the BOJ's priority? Keeping rates low? Or boosting inflation to two percent, in which case buying five-year bonds yielding 0.2 percent would be a disaster," Inadome said.

*As the BOJ is targeting 2 percent inflation over two years, the bond market perceives that expectation to eventually drive interest rates higher. This is causing uncertainty as the BOJ is also simultaneously trying to keep long-term yields low.

* The BOJ has pledged to double its bond holdings in two years -- a positive factor for bonds -- which the central bank says will help it meet the goal of lifting inflation to two percent.

* Uncertainty on the BOJ's policy boosted volatility in the market, making it harder for investors to buy JGBs than it used to be.

* High volatility tends to hurt longer maturities more, as their prices are far more sensitive to yield changes than the shorter-end.

* The 20-year yield rose 3.5 basis point to 1.495 percent after hitting a three-week high of 1.5 percent at one point.

* Traders were also nervous about how much investors will be ready to buy at an auction of 1.2 trillion yen 20-year JGB on Thursday. The spread between 10 and 20 year yields rose to a two-week high of 87 basis points, rebounding sharply from 2 1/2-year low of 67.5 basis points hit on April 5.

* The 30-year yield rose 4.5 basis point to 1.595 percent .

* The 10-year JGBs futures price, which reflect moves in the cheapest-to-deliver seven year sector, rose 0.07 point to 143.80, after it fell a full point on Friday.

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