* BOJ meeting outcome awaited, with failed operations in
* 10-yr yield steady after last week's drop to nearly 9-year
* Curve steepens slightly as long end falls ahead of 20-year
By Lisa Twaronite
TOKYO, May 22 Most Japanese government bonds
erased early losses on Tuesday on bargain-hunting, with only
longer tenors underperforming ahead of the sale of a 20-year
security later in the week.
Investors also awaited the outcome of the Bank of Japan's
two-day meeting which began on Tuesday, for any clues about
whether the BOJ intends to tweak its operations after it missed
its target for buying government bonds twice last week. The BOJ
is widely expected to refrain from policy
"How the BOJ deals with their failed operations will have a
big influence on the yield curve. If they continue on their
current course, they will almost certainly have to extend up the
curve, which is very bullish for the bond market," said Neale
Vincent, a strategist at Nomura Securities in Tokyo.
The central bank now buys bonds with up to three years left
to maturity, after extending that limit from two years at its
last meeting in April.
"What I would think is more sensible is if they diversify
their operations - buying more Nikkei ETFs etc - something that
doesn't involve buying bonds," Vincent said.
Last week, the BOJ fell short of its government bond-buying
target under its asset-buying programme. It also missed its
target for buying government bonds under its market operations
on Friday for the first time in more than six years, as banks
preferred to hold onto their JGBs rather than sell them to the
HOPES FOR EU PROGRESS ON DEBT
The front-month 10-year JGB futures contract ended
up 0.05 point at 143.25.
The 10-year bond yield was flat at 0.855
percent after its earlier rise to 0.865 percent. Friday's low
of 0.815 percent was its lowest level since July 2003.
"Ahead of Greece's election next month, we might not see a
0.9 percent yield on the 10-year bond," said a fixed-income fund
manager at a Japanese asset management firm in Tokyo.
Greece will hold a vote on June 17, with the country's
possible exit from the euro at issue after an election this
month led to a political impasse over austerity steps.
Investors hope an informal European summit on Wednesday
results in progress toward resolving the region's debt crisis.
France's new president Francois Hollande is likely to propose
mutualising European debt, to fend off contagion of funding
difficulties from troubled euro zone economies.
The yield curve steepened as longer tenors slightly
underperformed ahead of a 20-year auction on Thursday.
The 20-year yield gained 1.5 basis points to
1.640 percent. On Friday it fell as low as 1.570 percent, its
lowest level since August 2010.
The 30-year bond yield added 1.5 basis points
to 1.795 percent after touching 1.730 percent on Friday, its
lowest since September 2010.
Japanese banks logged a record net sale of 5.02 trillion in
JGBs in April, according to data from the Japan Securities
Dealers' Association released on Monday.
But trading volume was also at a record high, "suggesting
brisk sales and switching activity to take profits," said JGB
strategists at Barclays in Tokyo.
Life insurers bought a net 624 billion yen worth of
superlong bonds, down from the previous month but in line with
their average purchases.