* Ten-year futures rise 12 ticks after Friday sell-off
* MOF to sell 2.3 trln yen in 10-year bonds on Tuesday
By Dominic Lau
TOKYO, Jan 7 Benchmark 10-year Japanese
government bonds stabilised on Monday after a sell-off in the
previous session, as profit-taking in Tokyo shares helped
support fixed-income assets.
Yields on the 10-year bonds were unchanged at
0.835 percent after touching 0.840 percent, a 4-1/2-month high,
earlier in the session. They rose 4 basis points on Friday to
log their biggest one-day rise in five months as Japanese
equities rallied, buoyed by a weaker yen and a deal in
Washington to avert the "fiscal cliff".
The sell-off on Friday was also due to a drop in U.S.
Treasury prices after minutes from a Federal Reserve meeting
showed some policy makers were reticent about increasing its
$2.9 trillion balance sheet further.
But a 0.8 percent fall in the Nikkei share average
on Monday helped support the 10-year sector, ahead of a 2.3
trillion yen ($26 billion) auction of the same maturity on
Ten-year JGB futures rose 12 ticks to 143.44 after
shedding 33 ticks on Friday, their biggest one-day drop in a
Market participants remained cautious towards JGBs after
Prime Minister Shinzo Abe called on the Bank of Japan to set a 2
percent inflation target, and vowed to select a candidate who
shares his views on aggressive stimulus when the term of BOJ
Governor Masaaki Shirakawa expires in April. Abe's comments have
weakened the yen and boosted the appeal of exporters' shares.
"Equities are the winners for now among different products.
The equity rally will likely continue as long as the policy
expectations continue for the Abe administration," said Maki
Shimizu, a senior strategist at Citigroup Global Markets Japan.
Yields on 30-year debt edged up 0.5 basis
point to 2.00 percent, touching a 13-month high, while those on
20-year bonds added 0.5 basis point to 1.790
Longer-dated maturities have come under pressure over the
past several weeks on concerns about bolder reflationary
policies under the new government.
Shimizu said the 10-year auction was likely to meet cautious
demand, although the latest issue could carry a coupon of 0.8
percent, 10 basis points higher than that of the previous sale.
She said she expected benchmark 10-year bonds to trade at an
average yield of 0.850 percent for this quarter and could be
near 0.90 percent at the end of March.
A weekly gauge of sentiment in the JGB market skidded to its
lowest level since July, the latest Reuters poll showed. The
median forecast for the 10-year yield at the end of this week is
"We see 0.85 percent as the 10-year yield level at which
investors should cover short positions and adopt a duration
neutral stance versus the benchmark. Further yield upswing
requires a change in the monetary policy outlook," Royal Bank of
Scotland said in a research note.
"We think investors should continue to closely monitor
developments over the next one to two weeks because of the
uncertain mood, but the prospect of a major shift in
expectations for U.S. monetary policy and the resulting impact
on the JGB market is low at this point."
Benchmark 10-year JGBs lost 9.8 percent in 2012 in
dollar-based terms, according to Reuters data, due to a 12.8
percent drop in the yen against the dollar, the Japanese
currency's worst yearly performance since 2005.