JGBs slip, shrugging off weaker stocks; upper house election eyed

Thu Jul 18, 2013 11:06pm EDT

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TOKYO, July 19 (Reuters) - Japanese government bond prices
slipped slightly on Friday, once again taking directional cues
from U.S. debt prices that muted the impact of sharply weaker
Japanese equities.
        
    * U.S. Federal Reserve chief Ben Bernanke told the Senate
Banking Committee on Thursday it was too soon to judge if recent
"mixed" signals from the U.S. economy would prompt the central
bank to delay plans to trim its bond buying this year.
 
    But U.S. debt prices fell on as upbeat data on jobless
claims and factory activity supported the view the economy may
be strong enough for the Fed to pare bond purchases sooner
rather than later. 
          
    * The benchmark 10-year yield inched up half
a basis point to 0.805 percent, moving away from a five-week low
of 0.800 percent touched late in the previous session. 
    The benchmark yield has mostly traded in a range between
0.80 percent and 0.90 percent since late May. 

    * Ten-year JGB futures ended morning trade flat at
143.38, after wobbling in a narrow range between 143.28 and
143.42. JGB futures trading was relatively inactive in light of
the morning's gyrations in the stock market.
    The Nikkei Stock average slid 1.1 percent, reversing
gains of more than 1 percent that brought it to a two-month
peak, as some investors took profits before this weekend's
Japanese election.
             
    * Prime Minister Shinzo Abe's ruling bloc is expected to win
Japan's upper house election on Sunday, handing him more power
to pursue his aggressively reflationary policies.
    
    * Ahead of the election, weekly capital flow data from the
Ministry of Finance showed Japanese investors were net buyers of
foreign bonds for a second straight week last week by purchasing
the largest amount since September 2012. 
    Should the trend towards net buying continue, it could
provide another piece of early evidence that Abe's expansionary
stimulus policies are having their desired effect.
     
    * "I think a lot of the banks have started to buy U.S.
Treasuries or German Bunds because yields have gone up a lot,
but I don't think life insurance companies have really changed
their game plan so much," said Tadashi Matsukawa, head of Japan
fixed income at PineBridge Investments.
    
    * The five-year yield rose half a basis point
to 0.290 percent, moving away from the previous session's
five-week low of 0.285 percent.  
    The superlong zone underperformed, with the 30-year yield
 rising 2 basis points to 1.850 percent. The
20-year yield added 1.5 basis points to 1.725
percent.
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