* Superlongs underperform, with 30-yr yield up 2.5 bps
* Spread between 10- and 20-yr bonds widens to 11-month high
By Dominic Lau and Lisa Twaronite
TOKYO, Oct 23 Japanese government bonds slipped
on Tuesday after two sessions of gains, tracking an overnight
fall in U.S. Treasuries, but they were supported by growing
expectations of new easing steps by the Bank of Japan.
U.S. Treasury prices slipped on Monday, ahead of the sale of
$99 billion of U.S. government debt this week.
The benchmark 10-year JGB yield added 0.5
basis point to 0.780 percent after rising as high as 0.790
percent, approaching last week's peak of 0.795 percent, its
highest since late September.
The 10-year JGB futures contract eased 4 ticks to
143.98 after hitting a session low of 143.80. Support was seen
at last week's low of 143.79, which was its lowest since Sept.
"JGBs still haven't broken out of their recent ranges
despite the yield on benchmark U.S. Treasuries rising above 1.8
percent and the dollar/yen rising above 80, so it is hard to
predict JGB yields moving much," said Credit Suisse strategist
Shinji Ebihara in Tokyo.
"You can't really call this a risk-off market," he added.
The yen skidded to a three-month low of 80.02 yen against
the dollar and a five-month low against the euro on the
heightened expectations Japan will ease policy.
The BOJ is leaning toward easing monetary policy again at
its Oct. 30 meeting, according to sources familiar with its
thinking, with policymakers discussing additional steps that
could be taken together with a further increase in its
The most likely option is a further 10 trillion yen ($126
billion) increase, mostly in the form of government bond buying.
But it might also include a small increase in purchases of
exchange-traded funds (ETF) and real estate investment trusts
(REIT), the sources said.
Sources have also said the central bank will likely cut its
long-term economic and price forecasts at next week's meeting.
"Even if other assets make big moves, we don't expect JGB
yields to move much as investors await next week's BOJ meeting,"
said a fixed-income fund manager at a Japanese asset management
Yields on the 20-year yield added 2 basis
points to 1.695 percent, while those on the 30-year debt
rose 2.5 basis points to 1.950 percent.
The spread between the 10- and 20-year bonds widened to 91.5
basis points, its highest level in 11 months.
But Yuya Yamashita, rates strategist at J.P. Morgan, said it
was partly skewed by demand from domestic banks in the 10-year
sectors or below. Their purchases fluctuated greatly from one
month to the next, as it was difficult to time when to bet on
the spread to tighten in a flattening trade, he said.
"City banks' buying tends to be volatile, fluctuating from
positive to negative," Yamashita said.
"It really depends on city banks' activity," he added.