* Trading volume in 10-year futures hits 3rd lowest this
* Twenty-year yield slips 3 bps, 30-year down 1 bp
By Dominic Lau
TOKYO, March 27 Japanese government bond prices
gained on Wednesday, with the yield on benchmark 10-year debt
hitting a near-decade low for a fifth day in a row on
expectations that the Bank of Japan will soon buy longer-dated
paper to revive the economy.
BOJ Governor Haruhiko Kuroda told parliament on Tuesday that
the central bank will seek to push down market interest rates by
buying longer-dated JGBs among future policy options. The
central bank is to hold its next policy-setting meeting on April
3 and 4.
The 10-year yield slipped 2.5 basis points to
0.515 percent, reaching its lowest level since June 2003. It has
fallen 28 basis points this quarter.
Ten-year JGB futures added 9 ticks to 145.88 after
touching a record high of 145.95 in the previous session.
Trading volume hit their third-lowest this year, with 18,281
contracts changing hands, down from a two-week high of 29,069
contracts struck on Tuesday.
"The market is slightly overpriced. The market may touch 50
basis points in the near future because of the BOJ purchases," a
fixed-income fund manager at a Japanese asset management firm in
Still, he said he expected next Tuesday's auction of 2.4
trillion yen ($25.5 billion) worth of 10-year bonds would meet
"Final investors will not participate. Probably primary
dealers will cover their shorts. The auction may be supported,"
"But the point is that I don't think final investors can
accept 50 basis points for 10-year bonds. It's too low. Kuroda
is declaring an inflation target of 2 percent. Obviously, it's a
The contradiction was largely because many in the JGB market
do not expect the BOJ to achieve the inflation target.
But Neale Vincent, strategist at Nomura Securities, said
investors should avoid complacency.
"It would certainly make sense to consider some lower risk
bear trades, such as swaption spreads on the long end, in case
investors start to factor in the prospect of success (by the BOJ
to reflate the economy), not just about the bond-friendly aspect
of its easing," he said.
Vincent added that the uncertainty over whether the BOJ
would buy bonds up to the 10-year sector or over that duration
made the market volatile.
"If, as we expect, the BOJ increases its purchase of both 5s
to 10s and over 10s, I think the 15-to-20 sector is the best
place on the curve to be investing," he said.
"But if it only extends up to 10 years, then likely the
10-to-15 sector will be the main area that can benefit, as 5s to
10s have rallied so much already."
The 20-year yield eased 3 basis points to
1.430 percent, within striking distance of its near-decade low
of 1.410 percent hit in the previous session.
The 30-year yield inched down 1 basis point
to 1.580 percent. It has dropped 39.5 basis points since the
beginning of January, on track for its biggest quarterly fall
since the three months through June in 2010.
"I don't think the main buyers (of the superlong sectors),
the life insurance companies, can accept these levels," the fund