* Ten-year JGB futures hit 3-month low
* JGB 30-year yield adds 2 bps, 20-year up 3 bps
By Dominic Lau
TOKYO, Dec 26 Japanese government debt fell on
Wednesday, with the 10-year yield hitting a two-month high, on
expectations that incoming Prime Minister Shinzo Abe would
increase pressure on the central bank to ease policy further.
The 10-year yield added 2 basis points to
0.785 percent to its highest level since Nov. 1, while JGB
10-year futures fell 26 ticks to 143.66 in active trade
after trading as low as 143.58, their lowest level since Sept.
"Mr Abe and the Liberal Democratic Party look like they want
the dollar/yen to be at least above 85, or possibly 90. They
want the yen to be weaker than the current level," said Tadashi
Matsukawa, head of Japan fixed income at PineBridge Investments.
"We continue to see equities going high, so the pressure is
on the long-end of the JGB curve. For the short-end of the
curve, we continue to see the BOJ ease aggressively, so there is
no change in that."
BOJ policymakers debated their various options, such as an
open-ended commitment to buy assets, as early as in November,
minutes from the central bank's rate review showed, a sign that
they were already leaning toward action back than on the
worsening economic outlook.
Yields on the 30-year bonds added 2 basis
points to 1.955 percent, while those on the 20-year debt
rose 3 basis points to 1.745 percent.
Japan's Nikkei share average surged 1.5 percent to
10,230.36 on Wednesday, edging close its year's high of
10,255.15, while the yen fell to a 20-month low against the
dollar at 85.38 yen. The Nikkei has rallied 18.1 percent over
the past six weeks, spurred by the yen weakness.
Matsukawa said he expected the 10-year yield to reach 0.80
percent in early 2013 and to trade between 0.90 and 1.0 percent
in the middle of next year.
A fixed-income fund manager at a Japanese asset management
firm in Tokyo said Japanese investors' demand would help cap any
rise in 10-year yield at around 0.80 to 0.85 percent.
"The 10-year sector will be supported by a lot of domestic
buyers. They have lots of money and they have to invest in
something. The 10-year at 0.8 percent is a good level for them,"
the fund manager said.
Benchmark JGBs have lost 5.7 percent in 2012 in dollar-based
terms, according to Reuters data.
Yields on 2-year bonds were unquoted after the
Ministry of Finance sold 2.7 trillion yen ($31.8 billion) worth
of two-year debt.