* Longest maturities outperform, auguring well for 40-yr
* Sharp gains in Japanese shares prompts portfolio
* Market also supported by expectations of aggressive BOJ
* JGB futures rise above Ichimoku cloud top
By Hideyuki Sano
TOKYO, Feb 12 Long-dated Japanese government
bonds firmed on Tuesday as investors snatched up the longest
maturities even ahead of an auction of 40-year JGBs the
following day, as they rebalance their portfolio after sharp
gains in Japanese equities.
Also supporting the market, short-term notes yields were
stuck near historic lows, helped by expectations that the Bank
of Japan will step up its stimulus to lift inflation to 2
The 30-year bond yield fell 2.5 basis point to three-week
low of 1.965 percent, outperforming shorter
maturities while the 20-year bond yield also fell 1.5 basis
point to 1.760 percent, its lowest in nearly
Some passive fund mangers appeared to be buying bonds as
recent gains in Japanese share prices made their portfolio too
overweight on stocks, market players said.
Japan's Nikkei share average has risen almost a
third since mid-November. On Tuesday it climbed 1.9 percent to
edge near a 33-month high as the yen weakened after a U.S.
Treasury official voiced support for Japan's aggressive policies
to combat deflation and boot growth.
The strength of "superlong" bonds also pointed to the
market's optimism on an auction of 400 billion yen ($4.25
billion) 40-year JGBs on Wednesday.
"It seems like the market is trying to buy (super-long
bonds) in advance ahead of the auction," said Yuya Yamashita,
strategist at JPMorgan Securities.
Investors are heading for the long end of the yield curve,
as short-term bond yields have fallen to painfully low levels
since last week.
The five-year yield hit a record low of 0.135 percent
while the two-year yield to a 10-year low of 0.025
The catalyst for the sharp fall in short-term bond yields
was the announcement from BOJ Governor Masaaki Shirakawa that he
will step down in March, three weeks before his term expires.
He has long resisted cutting interest rates to zero but
Prime Minister Shinzo Abe is expected to name a sympathiser of
his reflationary policy agenda to succeed Shirakawa later this
Market players expect a new governor, whoever that will be,
to scrap interest payments on banks' excess reserves, a step
that is likely to let all money market rates fall to zero.
The five-year bond yield stood flat at 0.135 percent on
Tuesday while the two-year notes were untraded.
Unlike the cash bond market, however, many short-term rates
in the derivative markets have not fallen below their December
lows, suggesting the strength in short-term bonds also reflected
tight demand in the cash bond market as the Bank of Japan soaks
up a large amount of bonds from markets in its asset purchase
The 10-year bond yield fell 0.5 basis point to 0.750 percent
while the 10-year JGB futures price rose 0.08
point to 144.30, rising above the top of cloud on the
daily Ichimoku chart, a bullish technical sign.
Like most other financial markets, JGBs showed no reaction
to news that North Korea had conducted a nuclear test.