10-yr JGB yield slips, superlongs underperform ahead of 40-yr auction

TOKYO Wed Aug 14, 2013 10:27pm EDT

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TOKYO Aug 15 (Reuters) - Yields on benchmark Japanese government debt fell to near a three-month low on Thursday, though superlong maturities underperformed as some market players put on steepening trades ahead of a 40-year bond sale next week.

* The 20-year yield added 0.5 basis point to 1.665 percent, while the 30-year yield was also up 0.5 basis point at 1.780 percent.

* In contrast, the 10-year yield slipped 1 basis point to 0.740 percent, just shy of a three-month low of 0.730 percent touched on Tuesday. The five-year yield dipped 0.5 basis point to 0.275 percent.

* "It seems that someone is starting to buy short-end, or the 10-year sector, and selling the long-end of the curve as part of the steepening trade," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.

"Ahead of the 40-year auction, I think that makes sense. The BOJ purchased (JGBs) on Monday and Wednesday. They came in twice ... The next time they will come in is probably after the 40-year auction," he said, adding that those investors were likely to keep on their steepening trades until after the debt sale.

* The Ministry of Finance is to sell 400 billion yen ($4.1 billion) worth of 40-year bonds on Tuesday.

* Ten-year JGB futures rose 0.13 point to 144.07, exceeding their five-day moving average of 144.04 and not too far from a three-month peak of 144.24 hit on Tuesday.

* The 10-/30-year spread stood at 104 basis points, off a two-week low of 102 basis points reached on Tuesday, while the spread between 10- and 20-year yield was at 92.5 basis points, also up from a two-week trough hit on Aug. 13.

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