* Benchmark 10-year futures, cash bonds erase earlier losses
* Superlong maturities outperform as life insurers buy
* 10-, 30-yr spread narrows to mid-November level
By Lisa Twaronite
TOKYO, Dec 21 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.
Boehner said late on Thursday it was now up to President
Barack Obama to work with fellow Democrats in the Senate to
avert the automatic spending cuts and tax hikes from taking
effect next month.
The news prompted investors to seek safe-haven assets,
lifting benchmark U.S. 10-year Treasuries and pushing down their
The 10-year JGB futures contract ended up 0.04
point at 144.04, after dropping as low as 143.86 in the morning
session before news that Boehner had scrapped his bill. Volume
was moderate, with 32.246 contracts trading, the lowest this
week. Futures finished last week at 144.30.
Yields on cash 10-year JGBs lost 1 basis
point to 0.760 percent, falling as low as 0.755 percent at one
point. Before the U.S. budget impasse news, yields rose as high
as 0.780 percent, matching Wednesday's high, which was their
loftiest level since Nov. 2. 10-year yields ended last week at
"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
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
The yield curve flattened as 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 2 basis points
to 1.710 percent, while those on 30-year bonds
lost 3.5 basis points to 1.930 percent.
The 30-year yield's spread over 10-year yields stood at
1.170 percentage points, its narrowest since mid-November and
down from 1.255 percentage points on Dec. 4, which was its
highest since March 2008.
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.
Bank of Japan data showed on Friday that foreign ownership
of outstanding Japanese government bonds rose to a record at the
end of September of 86 trillion yen ($1.02 trillion), up 11.1
percent from the same period a year earlier. It accounted for a
record 9.1 percent of outstanding government debt.
Benchmark JGBs have lost 5.4 percent in 2012 in dollar-based
terms as of Friday, according to Reuters data.