JGBs flat as month-end demand offsets stock rally

By Rika Otsuka

TOKYO, Feb 27 (Reuters) - Japanese government bonds were little changed on Wednesday, as month-end demand helped the market recoup early losses due to a rally in Tokyo stocks.

JGBs slid in early trade as share prices rose on relief that a rescue plan is taking shape for ailing U.S. bond insurers, which back billions of dollars of debt.

By midday the Nikkei share average .N225 was up 1.4 percent, rising above the psychologically important 14,000 level for a second day.

But government debt quickly regained its footing as investors picked up longer-dated bonds, trying to extend the duration of their portfolios ahead of the month-end to match benchmark indexes such as the Nomura BPI. An overnight rise in U.S. Treasuries also added support.

"Since Tuesday, investors have been buying bonds to catch up with the extention in the duration of indexes," said Koji Ochiai, a senior market analyst at Mizuho Securities.

Such buying is expected to last for a few more days, putting flattening pressure on the yield curve, Ochiai said.

March 10-year futures edged up 0.01 point to 137.25 2JGBv1, hovering near a two-month low of 136.89.

The benchmark 10-year yield was down 0.5 basis point at 1.470 percent <JP10YTN=JBTC> after rising as high as 1.490 percent in early trade. The yield struck a two-month peak of 1.500 percent on Tuesday.