TOKYO, May 29 (Reuters) - Japanese government bond prices gained on Thursday, with the recent decline in global debt yields coaxing the benchmark yield to a one-year low.
A rally in government debt markets, notably German Bunds and the U.S. Treasuries, has added momentum to the fall in JGB yields, which had already declined significantly after the Bank of Japan embarked on aggressive monetary easing last year.
The benchmark JGB 10-year yield was down 1.5 basis points at 0.565 percent after brushing 0.560 percent, the lowest since May 2013.
“The decline in U.S. and European government bond yields proved a surprise for the market and set the stage for JGB yields to fall,” said Naomi Muguruma, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.
Immediate focus was on Europe, where expectations the European Central Bank will ease monetary policy at its June 5 meeting have fuelled demand for fixed-income securities.
On Wednesday hopes of ECB easing drove Spanish bond yields to record troughs and the German 10-year yield, the benchmark for euro zone borrowing, to its lowest since May last year.
“Some investors could opt to shift money into JGBs and U.S. Treasuries if the curve-flattening in the short to medium part of the Bund curve continues. Bunds could exert downward pressure on JGB yields until next week’s ECB meeting,” Muguruma at Mitsubishi UFJ Morgan Stanley Securities said.
Measures being prepared by the ECB are likely to include cutting the deposit rate into negative territory - effectively charging banks to hold cash at the ECB overnight - and bank loans helping to increase lending to smaller companies.
The June 10-year JGB futures gained 0.14 point to 145.51.
Strength in the 10-year JGB tenor spilled over to the superlong maturities, which helped after the Bank of Japan refrained this week from reducing the amount of longer-dated bonds it regularly purchases from the market as part of its quantitative easing policy.
The 20-year yield was down 1 basis point at 1.425 percent after touching 1.415 percent, its lowest since March last year. (Reporting by Shinichi Saoshiro; Editing by Eric Meijer)