JGB futures gain; govt shows concern over rising rates

TOKYO, Nov 10 (Reuters) - Japanese government bond futures edged up on Tuesday and the benchmark 10-year yield pulled back from a five-month high as the market breathed a sigh of relief after Japan's finance minister said he was worried about rising long-term yields.

* Finance Minister Hirohisa Fujii said on Tuesday that he was concerned about rising long-term bond yields and that the government must ensure its spending plans did not rattle the trust of bond investors. [ID:nT280803]

* "It was the kind of comment the market needed as the authorities had not shown too much concern toward the recent rise in rates," said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities.

"But the market will need more reassurance as investors await developments in the government's upcoming issuance plans."

* JGB gains were limited by persistent fiscal concerns, as investors braced for issuance increases by the government to offset low demand for retail bonds, fund an expected tax revenue shortfall and help finance the country's spending plans for the next fiscal year.

* The cost of insuring against default in government debt continued to rise. Five-year credit default swaps JPGV5YJPAC=MP on Japan's sovereign debt have risen to about 74 basis points from around 66 basis points on Friday. This was the highest since April, though still below a record of 130 touched in February.

* Participants said the CDS widening has been led by foreign speculative players who see Japan's ruling party, the Democratic Party, as a potential "big government" that runs the risk of driving up debt issuance to finance its spending plans.

* The two-year/10-year yield spread inched down to 120.5 basis points from a 3-½ year high of 121 basis points hit on Monday, according to Reuters data.

* Focus was on the 300 billion yen ($3.3 billion) 40-year JGB auction on Tuesday. The market expects the sale to draw sufficient demand from regular buyers of super-long bonds such as domestic life insurers and pension funds. The relatively small offer amount is also expected to make it easier for the market to absorb the issue. The tender results will be released at 0345 GMT.

* After a recent string of poor auctions, JGB participants would welcome an upbeat outcome, though Thursday's 2.4 trillion yen five-year tender is seen presenting a sterner test.

* December 10-year JGB futures 2JGBv1 rose 0.07 point to 137.45 after hitting 137.32.

* The two-year yield was unchanged at 0.265 percent JP2YTN=JBTC and the five-year yield dipped 0.5 basis point to 0.710 percent JP5YTN=JBTC.

* The benchmark 10-year yield JP10YTN=JBTC was unchanged at 1.470 percent after hitting a fresh five-month high of 1.485 percent. The 20-year yield rose 1 basis point to 2.170 percent JP20YTN=JBTC and the 30-year yield climbed 3 basis points to 2.310 percent JP30YTN=JBTC.

* Tokyo's Nikkei average .N225 climbed 1.6 percent. [.T] (Reporting by Shinichi Saoshiro; Editing by Chris Gallagher)