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* Trading volume in 10-year futures hits 3rd lowest this year
* Twenty-year yield slips 3 bps, 30-year down 1 bp
By Dominic Lau
TOKYO, March 27 (Reuters) - 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 Tokyo said.
Still, he said he expected next Tuesday's auction of 2.4 trillion yen ($25.5 billion) worth of 10-year bonds would meet decent demand.
"Final investors will not participate. Probably primary dealers will cover their shorts. The auction may be supported," he said.
"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 contradiction."
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 manager said.