April 4, 2013 / 7:36 AM / in 5 years

JGBs soar, benchmark yield plunges to record low after BOJ eases

* 10-yr yield falls to record low of 0.425 pct

* 10-yr futures jump to intraday record high

* Superlong tenor also jumps, yields at near-decade lows

TOKYO, April 4 (Reuters) - Japanese government bond futures soared to a record high on Thursday and the benchmark yield plunged to a record low, after the Bank of Japan shocked markets by dramatically easing and radically overhauling its monetary policy.

Superlong JGB yields also skidded to their lowest levels in nearly a decade after the central bank said it will adopt a new balance sheet target and pledged to double its JGB holdings in two years in a bid to arrest deflation.

The 10-year yield dropped 12.5 basis points to a record low of 0.425 percent, marking its biggest one-day fall since November 2003. It was last down 12 basis points at 0.430 percent.

“The market was caught off guard,” said Tadashi Matsukawa, head of fixed-income at Pinebridge Investments in Tokyo, who said many investors had held off buying early in the session on expectations that they would be able to buy on dips after the decision was announced.

“Today was like panic buying, and dealers had to cover at very expensive levels,” he said.

Ten-year JGB futures ended one tick shy of their intraday all-time record peak, gaining 0.60 point to 146.04.

Longer maturities also skyrocketed after the BOJ said it will combine two bond-buying schemes, its asset-buying and lending programme and the “rinban” bond-buying market operation, to buy JGBs with all maturities across the yield curve.

“We are still trying to scrutinize how the purchase will be done, but I think the average of seven years to maturity, depending on the market outstanding, will be centered on the 10-year sector, but with decent size purchases in the superlong tenor as well,” said Maki Shimizu, senior strategist at Citigroup in Tokyo.

“That is why the market is rallying like this,” she added.

The 20-year yield tumbled 27 basis points to 1.120 percent, while the 30-year yield shed 30 basis points to 1.220 percent, also their lowest respective levels in about a decade.

The 40-year JGB, an illiquid instrument, was said to be untraded and its yield indicated down 30.5 basis points at 1.280 percent.

The BOJ said it will go back to open-ended asset purchases, and buy over 7 trillion yen ($75 billion) of long-term JGBs each month, so that the balance of its bond holdings will increase at an annual pace of 50 trillion yen.

BOJ Governor Haruhiko Kuroda will hold a news conference after his debut policy-setting meeting, with his embargoed comments to come out any time after 4:15 p.m. (0715 GMT).

The policy meeting was the first chaired by Kuroda since he assumed the BOJ’s helm last month with a vow to whip deflation, and the decisions were made by unanimous vote.

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