JGB futures hit 22-month high after strong 10-yr offer

TOKYO, Dec 4 (Reuters) - Japanese government bond futures hit a 22-month high on Tuesday, extending gains after dealers flocked to an auction of 10-year debt on expectations that the Bank of Japan will not raise interest rates until well into next year.

A 1.9 trillion yen ($17.21 billion) auction of 10-year notes by the Ministry of Finance attracted bids 3.19 times the amount on offer, the highest since an auction in June, as some in the market considered the maturity relatively cheap compared with shorter-dated notes.

"If you were forced to buy somewhere on the curve, on a relative basis, it would the 10-, 20- or 30-year sector," said Hitomi Kimura, a fixed-income strategist at J.P. Morgan Securities.

She said shorter maturities have already factored in the possibility that the Bank of Japan's overnight rate may still be stuck at 0.5 percent in a year's time, while the 10-year yield may have a bit more room to slide.

"I don't think anyone is happy about buying, but if you have to buy you have very limited options."

December futures 2JGBv1 climbed as much as 0.40 point to 137.73, the highest since January 2006, before inching back to 137.61 by 0430 GMT.

The yield on the benchmark 10-year JGB <JP10YTN=JBTC> slipped four basis points to 1.405 percent, approaching 1.395 percent touched late last month for the first time since September 2005.

The five-year yield <JP5YTN=JBTC> dropped as much as four basis points to 0.960 percent, its lowest since February 2006. Short- to mid-term maturities are most vulnerable to rate rise expectations.

JGBs were also supported by a 0.70 percent slide in the Nikkei average .N225.