December 21, 2012 / 3:05 AM / 5 years ago

JGBs firm, tracking Treasuries as Boehner drops 'cliff' plan

3 Min Read

* Benchmark 10-year futures, cash bonds erase earlier losses

* Superlong maturities outperform as life insurers buy

By Lisa Twaronite

TOKYO, Dec 21 (Reuters) - Japanese government bonds erased losses on Friday, with benchmark yields dropping from a 7-week high in line with rallying U.S. Treasuries after Speaker of the U.S. House of Representatives John Boehner said his tax bill aimed at solving the U.S. "fiscal cliff" budget impasse lacked the votes to pass.

The U.S. news prompted investors to seek safe-haven assets, lifting benchmark U.S. 10-year Treasuries and pushing down their yields.

The 10-year JGB futures contract ended morning trade up 0.02 point at 144.03, after earlier dropping as low as 143.86.

Yields on cash 10-year JGBs fell half a basis point to 0.765 percent, after earlier rising as high as 0.780 percent. That matched Wednesday's high, which was their loftiest level since Nov. 2.

"It's all the U.S. story now," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.

"The Japanese story is pretty much over, with the Japanese elections and the BOJ. Everything is on the 'cliff' now," he said.

On Thursday, the BOJ expanded its asset-buying and lending programme (APP) by 10 trillion yen ($119 billion) to 101 trillion yen, an expected easing move against a backdrop of rising political pressure.

Shinzo Abe, the country's next leader after his Liberal Democratic Party's landslide in Sunday's elections, has called on the bank to boost efforts to take more aggressive steps to beat deflation.

The superlong sector outperformed as Japanese life insurers bought in that zone, market participants said.

"Life insurance companies had to buy anyway, and they're buying on top of the 'cliff' story. They were waiting for a time to do it," Bank of America Merrill Lynch's Fujita said.

Yields on 20-year bonds fell 1 basis point to 1.720 percent, while those on 30-year bonds lost 2 basis points to 1.945 percent.

Japan's financial markets will be closed on Monday in observance of the Emperor's birthday, and many markets around the world close on Tuesday for Christmas.

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