* Speculation Kuroda-led BOJ will step up buying in 20- and
* Investors sceptical Kuroda can boost inflation to 2 pct in
* 30-year yield down 9.0 basis points, biggest daily fall
* Japanese investors buying ahead of March 31 book-closing
* JGB futures hit record high, 5-year yield at record low
By Hideyuki Sano
TOKYO, March 4 Japanese government bonds surged
on Monday, with yields on long maturities posting their biggest
fall in two and a half years, on speculation the Bank of Japan
will step up buying of long- dated bonds under a new governor.
Sharp gains in longest maturities came even as Haruhiko
Kuroda, Bank of Japan Governor nominee, vowed to end Japan's
deflation and lift inflation to two percent in about two years,
reflecting investors' doubts monetary policy can deliver the
"Of course buying 10-year bonds yielding just 0.6 percent
makes no sense at all if inflation is to rise indeed to two
percent in two years," said a trader at a major Japanese
"To me, the market seems a bit overheated now. But you can't
go short in this market," he added.
The 30-year bond yield fell 9.0 basis points -- its biggest
daily fall since mid-2010 -- to 1.675 percent,
its lowest level since August 2010.
The decline came even after its 14.5 basis point fall last
week, its biggest weekly decline since December 2008.
The 20-year yield fell 8.0 basis points to 1.490 percent
, breaking below its 2010 trough of 1.510 percent
to hit its lowest level since August 2003.
"Speculation is rising that, under Kuroda, the BOJ will buy
more in 20- and 30-year bonds. If that happens, maybe the
20-year yield could fall to around 1.2 percent," said a trader
at a Japanese bank.
Unlike the Federal Reserve, which buys a large amount of
long-dated government debt, the BOJ's bond buying has long been
centred on short maturities. It fears that having a large amount
in long-dated bonds on its balance sheet will jeopardize its
policy flexibility in the future.
The central bank currently plans to buy a total of 41.6
trillion yen in bonds this year -- 20.0 trillion yen in an asset
purchase programme and 21.6 trillion yen as a part of money
Of the total buying, however, only 1.2 trillion yen is in
maturities between 10 and 30 years, about three percent of its
total bond buying.
In his confirmation hearing in parliament on Monday, BOJ
nominee governor Kuroda said bank was not buying the right
volume or type of assets, although he did not specifically
mention buying in super-long bonds.
RUSH BEFORE BOOK-CLOSING
While many Japanese investors are sceptical of Kuroda's
pledge to boost inflation, their latest foray into longest
maturities also reflected the need to put their portfolio in
order by March 31, the end of financial year, traders noted.
Some of them had been underweight on superlongs maturities
precisely for fear that Prime Minister's Shinzo Abe's loose
monetary policy plan might spark future inflation.
"Right now, all they care is how they look like this
financial year. They don't care about inflation that may or may
not happen in two years," said the Japanese brokerage trader,
adding the market could change its course after the turn of new
The yield on the benchmark 10-year JGB fell 5.5 basis points
to 0.600 percent, its lowest level in nearly 10
years, even ahead of Tuesday's 10-year JGB auction. The Ministry
of Finance plans to sell 2.4 trillion yen ($25.7 billion) of
The price of 10-year JGB futures, which reflects the
cheapest-to-deliver seven-year sector, rose 0.27 point to 145.32
, an all-time high.
The five-year yield dipped 2.0 basis point to 0.095 percent
, a record low.
Painfully low yields on shorter maturities, a result of
Abe's campaign for aggressive easing, is another reason forcing
investors to buy buying longer-dated bonds to earn income.
"There's no point buying five-year bonds. So by default,
they are buying long-dated bonds even though that isn't a
healthy investment strategy," said Tohru Yamamoto, chief bond
strategist at Daiwa Securities.
In addition to domestic factors, JGBs also had tailwinds
from concerns about global economy, stemming from U.S. spending
cuts and from Italy's political crisis that threatens euro zone