* Superlongs up on bargain-hunting after sharp steepening
* Futures snap four-day losing streak
* Bond investors think BOJ expectations have gone too far
By Hideyuki Sano
TOKYO, Nov 26 Japanese government bond prices
firmed on Monday, with the longest maturities snatched up on
bargain-hunting after their underperformance in the past week
and ahead of likely month-end buying by pension funds.
Expectations that main opposition party leader Shinzo Abe,
seen as a front-runner to become prime minister after an
election next month, will push for radical monetary easing had
undermined "superlongs" such as 20-, and 30-year bonds.
"Market expectations had gone way ahead of reality. Even if
Abe wins, there's only so much he can do. Setting an inflation
target is one thing. Achieving it is another thing," said a fund
manager at a Japanese asset management firm.
A series of Abe's proposals -- including setting a higher
inflation target and sub-zero interest rates -- have sparked a
sell-off in the yen, a rally in Japanese shares and a steepening
in the JGB yield curve.
As the spread between 10- and 20-year yields rose to 95
basis points last week, highest level since 1999, some
bargain-hunting kicked in in the 20- and 30-year sector on
The 30-year yield fell 1.5 basis point to 1.935 percent
and the 20-year yield also fell 1.5 basis point
to 1.670 percent.
They were also helped by expectations of month-end duration
extensions by pension funds. They often buy long-dated bonds to
extend their portfolio's duration to match the index.
"If they are going to ease, they will have to buy a lot of
JGBs. So essentially the market is fairly supported," said
Tadashi Matsukawa, head of fixed income investment at PineBridge
Investments in Tokyo.
The benchmark 10-year bond yield was flat at 0.735 percent
on Monday, near a nine-year low of 0.720 percent
hit in July.
The 10-year JGB futures rose 0.06 point to 144.60,
snapping their four-day losing streak, despite a rise in
Japanese share prices on Monday. Japan's Nikkei share average
closed at a 7-month high.
Unwinding of recent steepening bets also pushed down the
three-month euroyen futures to 99.760 from seven-year
high of 99.770 hit first on Wednesday and again on Thursday and
"Many bond market players think the latest rise in Japanese
shares is a bit excessive. It's not like investors are
drastically shifting their portfolio in favour of stocks over
bonds," said Naomi Muguruma, senior bond strategist at
Mitsubishi UFJ Morgan Stanley Securities.
Many bond fund managers in fact doubt how much change Abe
can bring to the BOJ's policy and to the economy.
"At the moment, Japanese shares are up, the yen is down and
bonds are supported. It is a dream world for Japan. But you
cannot be in a situation like this forever," said the manager at
the Japanese asset management firm.