August 30, 2013 / 7:26 AM / 4 years ago

JGBs fall, with 10-year yield off 3-1/2-month low

* Ten-year JGB yield

TOKYO, Aug 30 (Reuters) - Japanese government bond prices slipped on Friday, with the benchmark 10-year yield coming off a 3-1/2-month low, as market players were disappointed that month-end demand from pension funds had not fully materialised.

"This high expectation of month-end extension (by pension funds and index funds) was sort of whispered yesterday," said Maki Shimizu, senior JGB strategist at Citigroup.

"That raised expectations but we don't really see much of that today. Maybe it's the disappointment."

The 10-year yield added 1.5 basis points to 0.720 percent. It was still down 7.5 basis points this month.

Ten-year JGB futures dipped 0.06 point to 144.35 after earlier hitting a three-month high of 144.48. Trading volume was relatively light, with 17,589 contracts changing hands, up from Thursday's 16,851 but down from last week's daily average of 20,854.

The yield curve steepening came despite the Bank of Japan's offer to buy 400 billion yen ($4.1 billion) of JGBs with residual maturities of five to 10 years, as part of its bond-buying programme to spur growth in the world's third-largest economy.

Data on Friday showed Japan's consumer prices accelerated to their highest in nearly five years in July and factory output rebounded smartly, suggesting that government and central bank efforts to end deflation are making some progress.

The 30-year yield was up 1.5 basis points at 1.755 percent after it fell earlier to as much as 1.730 percent, a three-month low. The 20-year yield gained 1 basis point to 1.640 percent.

The Japanese central bank is to hold a two-day policy meeting on Sept 4 and 5, though Shimizu said the BOJ was likely to stand pat.

But Barclays Securities said JGB yields tended to climb in early September going by their seasonal patterns.

"That is, JGB yields are prone to rise at the beginning of the final month of each quarter. This upward tendency is particularly true this September, even if U.S. Treasury yields are declining," it wrote in a note.

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