* Superlong tenor underperforms with Dec. 16 election in
* 10-yr futures eke out gain after hitting 9 1/2 year high
By Lisa Twaronite
TOKYO, Dec 3 Japanese government bonds steadied
on Monday ahead of auctions of longer maturities later this
week, with benchmark yields staying above a 9-1/2-year low
touched on Friday.
But the yield curve continued to steepen ahead of a general
election on Dec. 16. Shinzo Abe, leader of the main opposition
Liberal Democratic Party (LDP) and the front-runner to be the
next prime minister, has called on the Bank of Japan to take
more drastic easing steps. This has pressured the yen, as well
as prices of superlong JGBs on inflation concerns.
Yields on 20-year bonds and 30-year bonds
both rose 1 basis point to 1.680 percent and
1.950 percent respectively, though both were down half a basis
point from their session highs.
"In the short term, the long end is the easiest part of the
curve to move," said Neale Vincent, strategist at Nomura
Securities in Tokyo.
"But if investors are right about the long end selling off
on reflationary policies, the middle of the curve is going to
get hurt, too. The central bank may have to buy a lot of bonds
to achieve the inflation, but returns on the sub-6-year sector
are going to look very unattractive if policy even half works,"
Vincent said he favours trades such as payer spreads based
on the idea that the middle of the yield curve will stay strong
well into next year, but then re-price when the BOJ eventually
turns more neutral.
BOJ Governor Masaaki Shirakawa on Monday said that the
central bank is committed to loosening monetary policy
aggressively on condition there is no substantial risk to
sustainable economic growth.
The benchmark 10-year JGB futures price ended up
0.01 point at 144.87 after earlier rising to 144.91, its highest
level since June 2003. Futures are not far from their record
high of 145.09, also hit that month.
The current 10-year cash JGB yield was flat
at 0.705 percent, down from a session high of 0.710 percent, and
holding above Friday's intraday low of 0.695 percent. That was
its lowest level since June 2003 and the first time since then
that it fell below 0.70 percent.
The Ministry of Finance will offer 2.3 trillion yen of
10-year bonds on Tuesday and 700 billion yen of 30-year bonds on
"There are people who want to buy at the 10-year auction,
even with yields at these low levels," said a fixed-income fund
manager at a Japanese trust bank.
"Ahead of the election, we are probably not going to see any
big movements in JGBs," he said.
A weekly gauge of sentiment in the Japanese government bond
market remained negative but showed a slight improvement, with
benchmark yields expected to stay in recent ranges ahead of this
Undermining the appeal of bonds, data released early in the
session showed Japanese companies increased spending on plant
and equipment in the July-September quarter, rising for a fourth