December 18, 2012 / 2:21 AM / 5 years ago

JGBs slip on concerns about supplementary budget

3 Min Read

TOKYO, Dec 18 (Reuters) - Japanese government bond prices sagged on Tuesday with the benchmark 10-year yield hitting a one-month high on concerns about a possible rise in the country's debt burden following political pledges of big-scale stimulus to boost the economy.

* The market was also dented by optimism that U.S. policymakers will reach a deal to avert a fiscal crunch after a top Republican negotiator showed readiness to accept tax increases for the wealthy -- a key stumbling block in the talk.

* The 10-year JGB yield rose 1.5 basis point to 0.750 percent, its highest level since Nov. 15, while the 10-year JGB futures fell 0.18 in price to 144.05

* Shinzo Abe, due to become Japan's prime minister next Monday after an election victory at the weekend, said he would compile a big supplementary budget to shore up the economy, fanning worries of more debt issues to finance the stimulus steps.

* "He's talking about a large scale budget, so we have to think of a two-digit number," said Mari Iwashita, chief market economist, referring to the possibility the budget could top 10 trillion yen.

* While part of such a budget can be funded by surplus in the current budget, analysts say the government will have to issue new debt if the stimulus is close to 10 trillion yen.

* The 20-year bond yield rose 2.0 basis points to 1.730 percent, an eight-month high, while the 30-year yield also hit an eight-month high of 1.985 percent .

* These "superlong" bonds have been underperforming sharply on worries aggressive monetary easing Abe is calling for could boost inflation, perhaps not in the near future but some time during their 20-year lifespan.

* In addition, market players were bracing for an auction of 1.2 trillion yen ($14.3 billion) of 20-year government bonds on Tuesday. The auction closes at noon and results will be announced at 12:45 p.m. (0345 GMT).

* On the other hand, expectations of more monetary easing helped mitigate losses on shorter maturities as further easing is likely to involve more buying of short-term government debt.

* The five-year yield rose just 0.5 basis point to 0.180 .

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