Ten-year JGB yield falls to 2-month low after Abe's big election win
* Ten-year futures climb to two-month high in light trade
* Five-year yield slips to six-week low
By Dominic Lau
TOKYO, July 22 (Reuters) - Yields on benchmark 10-year Japanese government bonds hit a two-month low on Monday, helped by stocks paring early gains as investors took profits after Prime Minister Shinzo Abe's ruling bloc scored a big election win over the weekend as expected.
The market was also supported by the Bank of Japan's offer to buy 650 billion yen ($6.47 billion) worth of JGBs with residual maturities of five to 10 years and more than 10 years, as part of its radical plan to pull the country out of deflation.
The victory gave Abe and his coalition partner control in both the lower and upper houses, handing him a strong mandate to continue his aggressive push to revive the world's third-largest economy.
Yuya Yamashita, rates strategist at JPMorgan in Tokyo, said some market participants might have worried that Tokyo's Nikkei share average would rally hard and hurt JGBs, if the Abe's Liberal Democratic Party secured a majority on its own.
"This outcome of the LDP and the New Komeito gaining the majority was the main scenario. Some JGB market participants may kind of feel relief."
The 10-year yield eased 1.5 basis points to 0.785 percent, its lowest level since May 14 and an reversing early rise to 0.805 percent, while Tokyo's Nikkei average ended up 0.5 percent after rising as high as 1.2 percent in morning trade.
Barclays Securities said the focus would now shift to whether the government would follow through with the scheduled increase in consumption tax in April 2014 and carry out reforms in the labour market and deliver corporate tax cuts.
Monday's fall in the 10-year yield broke a trading range of 0.80 and 0.90 percent that has been held since late May as calm returned to the JGB markets after it hit a record low of 0.315 percent a day after the BOJ unveiled its massive easing scheme in early April, and then climbed to a high of 1.0 percent on May 23.
BOJ board member Takehiro Sato said the central bank is prepared to inject more stimulus if the economy's recovery is threatened, citing risks such as the slowdown in Chinese growth.
Ten-year JGB futures were up 0.20 point at 143.64, hitting a two-month high and holding above their five-day moving average of 143.36. Trading volume was relatively light with 17,107 contracts changing hands, down from Friday's 18,096 and last week's daily average of 17,408.
The five-year yield dipped 1.5 basis points to 0.270 percent, hitting a six-week low.
Both the 20- and 30-year yields dipped 1 basis point, to 1.705 and 1.825 percent, respectively.
The head of Japan's life insurance association said late on Friday that Japanese life insurers were unlikely to be thinking of increasing their foreign bond holdings by large amounts with domestic debt yields offering reasonable returns.