* 5-yr notes outperform; yield matches December's 9 1/2-yr
* 30-yr yields touch 16-month high; 5-, 30-yr yield spread
at widest since March 2010
* Benchmark 10-yr yield off highs as regional banks buy
By Lisa Twaronite
TOKYO, Jan 11 Japanese government bonds soared
at the short end of the yield curve while sagging at the long
end on Friday, on growing expectations that the new government
under Prime Minister Shinzo Abe will push the Bank of Japan to
ease policy further.
Abe said in an interview in the Nikkei newspaper published
on Friday that the BOJ should consider maximising employment as
a monetary policy goal to help boost the economy.
"There are so many cross-currents at the moment. You've got
the BOJ potentially buying a lot more bonds in the front end,
increased issuance across the curve, and hopes for economic
recovery, which is putting steepening pressure on the curve,"
said Neale Vincent, strategist at Nomura Securities in Tokyo.
Abe's remarks helped take the yen to a 2-1/2-year low
against the dollar of 89.35 yen, which in turn bolstered the
Nikkei stock average 1.4 percent to a 23-month high, and
took away some of the appeal of safe-haven fixed income assets.
But expectations of easier monetary policy underpinned
shorter- and medium-term maturities, with the 5-year JGB yield
skidding as low as 0.150 percent.
That was its lowest since Dec. 6 and within sight of its
lowest level since June 2003, when it hit a record low of 0.145
percent on the country's banking crisis. It last stood at 0.165
percent, down 2.5 basis points.
The BOJ buys JGBs with up to three years of remaining
maturity in its asset purchase programme, so expectations of
more central bank buying have effectively anchored yields on
The BOJ will consider easing monetary policy again at its
Jan. 21-22 meeting, likely by increasing its 101 trillion yen
asset buying and lending programme, according to sources
familiar with the central bank's thinking.
"As long as the BOJ keeps its easy policy, there is little
risk in holding 5-year notes," said a fixed-income fund manager
at a Japanese asset management firm.
In contrast to the 5-year zone, the yield on 30-year bonds
rose 1.5 basis points to 2.015 percent after
hitting a morning high of 2.025 percent, its highest since
The 30-year yield's spread over 5-year yields stood at 1.855
percentage points, its widest since March 2010.
The yield on the 20-year bond was flat at
1.790 percent, off an intraday high of 1.805 percent, its
highest since April 2012.
Expectations for more easing were also fuelled by data on
Friday showing Japan posted a current account deficit of 222.4
billion yen ($2.5 billion) in November, the first deficit in 10
months and far larger than economists' median
On Friday, the Japanese government approved a 10.3 trillion
yen economic stimulus package. A government official said it
will sell around 5 trillion yen more bonds than originally
planned for the current fiscal year to fund it.
The 10-year JGB yield inched down half a
basis point to 0.815 percent, after matching a 4-1/2 month high
of 0.840 percent hit on Monday. Regional banks were said to be
bargain hunting, according to market participants.
The benchmark 10-year JGB futures contract ended up
0.29 point at 143.75 on heavy volume of 55,021 contracts, the
highest since Dec. 6. In a potentially bullish signal, futures
ended above their 14-day moving average for the first time since
This week, Nomura's Vincent said he has been recommending 7
to 9-year asset swaps.
"Asset swaps are expensive in most zones, because swaps have
been paid a lot, but that area remained cheap. If rates rise or
the yen cheapens, asset swaps tend to do well," he said.