* Noda says ready to dissolve parliament this week
* 10-yr futures drop in after-hours trade after Noda remarks
* Buy against swap wings at 20-year auction-strategist
By Lisa Twaronite
TOKYO, Nov 14 Japanese government bond prices
fell on Wednesday as investors sold ahead of Thursday's 20-year
sale, with longer maturities also pressured late in the session
by Prime Minister Yoshihiko Noda said he was willing to dissolve
parliament this week.
Noda said in a parliamentary debate he would dissolve the
lower house on Nov. 16, clearing the way for a general election
next month, if the opposition agreed to carry out electoral
reform. Shinzo Abe, leader of the main opposition Liberal
Democratic Party, agreed to the demand.
Many market participants expect Noda's party to be voted out
of power in the election, with a new LDP-led government seen as
more aggressive in putting pressure on the Bank of Japan to
raise its inflation target.
"It is bearish, for obvious reasons - the prospect of
economy-friendly campaign 'pledges' and the possibility of a
more reflationary LDP coming back to power," said Neale Vincent,
strategist at Nomura Securities in Tokyo.
The 10-year JGB futures contract ended down 0.07
point at 144.47, after moving in a tight 144.45-144.53 range
throughout the day. After Noda's statement, the contract was
down 0.09 ticks at 144.38 in after-hours trade.
In cash trading, the 10-year yield rose 1.5
basis points to 0.745 percent, gaining half a basis point late
in the session.
The yields on 30-year bonds, the most
sensitive to political concerns, were flat for most of the day
but rose one basis point to 1.910 percent after Noda's remarks.
Yields on 20-year debt also added a basis
point to 1.655 percent ahead of Thursday's offering of 1.2
trillion yen of 20-year notes.
"The 15-year to 20-year JGB sector is very cheap on the
curve, and tomorrow's auction provides a good chance to buy,
either against the wings, or against swaps," Vincent said.
"If you want to combine the two, you can buy against swap
wings," he said, referring to the position of buying 20-year
JGBs against paying 7-year and 25-year swaps.
JGB investors' attention turned back to domestic concerns
after focusing on the U.S. fiscal crisis, which many say could
pressure yields in the coming weeks.
Debate on the U.S. "fiscal cliff" resumed on Tuesday with
the White House saying it was ready to negotiate with
Republicans on taxes and spending. But a spokesman for President
Barack Obama said he will keep insisting that tax rates on the
wealthy must rise in 2013.
"The market is watching developments in the U.S. which could
keep U.S. Treasuries well-bid and support JGBs," said a
fixed-income fund manager at a Japanese trust bank.