* Yields on benchmark 10-year JGB down 6.5 bps in July-Sept
* JGB 30-year yields up 1 bp in the quarter
By Dominic Lau
TOKYO, Sept 28 Benchmark 10-year Japanese
government bonds rose on Friday in month-ending bargain hunting,
with the yield hitting a seven-week low, shrugging off debt
negative news of Spain's new economic reform plans and a tough
budget to cut spending.
The 10-year yield slipped 1.5 basis points to
0.765 percent, and lost 6.5 basis points in July-September after
falling 15.5 basis points in the previous quarter, its best
quarterly decline in two years.
For the year, the 10-year yield is down 21.5 basis points.
"Current (yield curve) steepening is because of dip-buying
pressure among domestic investors, particularly toward the end
of the quarter," said Maki Shimizu, senior strategist at
Citigroup Global Markets Japan.
"We saw some good demand because of the large bond
redemption this month."
But some market participants fear that if present low yields
continue, the coupon for next Thursday's 10-year bond auction
will be below the current 0.8 percent at which it was set for
the past three sales.
"That sector is a little bit expensive, but it's probably
going to stay expensive." said Neale Vincent, strategist at
Ten-year JGB futures rose 9 ticks to 144.19 and
were up 50 ticks for the quarter.
Shimizu said the 10-year yield was likely to rise in the
next quarter on concerns that if Liberal Democratic Party leader
Shinzo Abe were to become the next prime minister, he would
likely pressure the Bank of Japan to ease monetary policy
"More reflationary policies are likely to come in. If such
policies are hammered out, we will likely see equities rallying
which will be negative for the bond market," she said.
Citigroup recommended investors short 10-year JGBs with a
short cover at 0.950 percent, as the bank is forecasting the
benchmark yield to climb to that level by the end of December,
an 18.5 basis points increase from current levels.
For the 20-year yield, Citigroup expects it
to rise to 1.700 percent, she said, adding that Japanese
government bonds would be supported by concerns over the euro
zone sovereign debt crisis and a global economic slowdown.
On Thursday, Spain's announcement of a detailed reform
framework and a strict budget was seen by many as an effort to
bring itself in line with likely conditions for an international
bailout, which would be a step toward implementing the European
Central Bank's bond-buying programme.
Yields on 20-year bonds drifted 0.5 basis point higher on
Friday to 1.645 percent, while those on 30-year debt
also rose by the same margin, to 1.890 percent.
The longer-dated 30-year bond has underperformed this
quarter, up 1 basis point versus a 2-basis point fall for