* 5-yr yield at record low after reports Kuroda to head BOJ
* 10-yr yield drops to lowest since mid-Dec
* Rinban bond purchases could be increased
* 10-yr futures touch highest in more than two months
TOKYO, Feb 25 Japan government bonds rose on
Monday, with the benchmark yield dropping to its lowest in
nearly 11 weeks and the five-year yield plumbing a fresh record
nadir after sources said monetary easing advocate Haruhiko
Kuroda will be tapped as central bank chief.
Kuroda, president of the Asian Development Bank, has long
criticised the Bank of Japan as too slow in expanding stimulus,
so he would be expected to push more radical efforts to achieve
its 2 percent inflation target set in January.
These measures could include increasing the central bank's
bond-buying "rinban" operation, through which it buys 21.6
trillion yen ($231.7 billion) worth of JGBs per year. Rinban is
separate from the BOJ's asset-purchase programme, under which it
only buys bonds with up to three years left to maturity.
"The market reacted with a bull-flattening bias early in the
morning session. It seems the market has started to price in
more for an increase in the rinban operations," said Tomohisa
Fujiki, interest rate strategist for BNP Paribas in Tokyo.
The prospect for more aggressive purchasing of longer-term
bonds helps explains why gains were not confined to the short-
and mid-term sectors of the yield curve, he said
In addition to the Kuroda developments, Japanese academic
Kikuo Iwata, an advocate of unorthodox monetary easing steps to
beat deflation, said he had been sounded out by Prime Minister
Shinzo Abe for the post of deputy BOJ governor and would accept
"Mr. Iwata is more for buying longer bonds, so let's see,"
The yield on 10-year bonds shed 2.5 basis
points to 0.700 percent, its lowest since Dec. 12.
Ten-year JGB futures ended up 0.17 point at 144.67,
after rising as high as 144.74, their highest since Dec. 11.
The five-year yield dropped 1 basis point to
0.120 percent, the lowest recorded since Japan started issuing
5-year bonds in 2000. That tenor pushed into record-low
territory last month, on expectations the BOJ will eventually
increase the time left to maturity of JGBs bought in its asset
"If such an expectation gets priced into the market, it will
probably start putting downward pressure on yields in the 5- to
10-year sector," Tomohiro Miyasaka, an analyst at Credit Suisse
in Tokyo, said in a note to clients on Monday.
Meanwhile, he said expects loose supply-demand conditions
for 20-year JGBs, because of their low absolute yield levels, so
he recommends a 7-year/20-year steepener to benefit from this
steepening of the JGB yield curve.
The 20-year yield slipped 1 basis point to
1.710 percent after dropping to 1.705 percent earlier, its
lowest since Dec. 21.
The 30-year yield fell 1.5 basis points to
1.900 percent after dropping as low as 1.890 percent.
A weekly gauge of sentiment in the Japanese government bond
market turned positive for the first time in eight weeks,
bolstered by expectations of more BOJ easing, the latest Thomson
Reuters poll showed on Monday.