December 14, 2012 / 7:06 AM / 5 years ago

JGBs slip as investors brace for weekend election

* Benchmark yields flat after rise to this month's high
    * 20-yr yields flat after rise to highest level since April

    By Lisa Twaronite
    TOKYO, Dec 14 (Reuters) - Japanese government bonds mostly
slipped on Friday, with benchmark yields touching their highest
level this month, as investors braced for a weekend election
likely to bring the conservative Liberal Democratic Party back
to power and set the stage for more fiscal and monetary
    The latest polls indicated the general election on Sunday is
likely to result in a decisive victory for the opposition LDP,
whose leader, Shinzo Abe, has called for the Bank of Japan to
take more drastic steps to lift the economy and pull the country
out of deflation.    
    "Bargain hunters emerged in the superlong zone late in the
afternoon, but most investors are waiting for the election
outcome and next week's BOJ meeting," said a fixed-income fund
manager at a Japanese trust bank.
    Yields on 10-year JGBs were flat at 0.725
percent after earlier rising to 0.730 percent. That marked their
highest level since Nov. 27, moving away from last week's 9 1/2
year low of 0.685 percent. 
    Ten-year JGB futures for March ended down 0.10
point at 144.30 point in heavy trading of 43,876 contracts.
Futures are down from their record intraday high of 145.26 hit a
week ago, although part of the difference is due to the December
contract's expiry this week.       
    The Bank of Japan's latest tankan survey, released on
Friday, showed business sentiment worsened for a second straight
quarter in the three months to December and will barely improve
early next year, adding to pressure on the central bank to do
more. [ID:nL4N09M2TJ
    The BOJ will hold its last 2012 policy meeting on Wednesday
and Thursday. It will most likely increase its asset-buying and
lending programme, currently at 91 trillion yen ($1.1 trillion),
by another 5-10 trillion yen, sources have said. 
    "The tankan results weren't good, though the market shrugged
them off. But the long end is coming under pressure again,
expecting more stimulus after the election," said a fixed-income
fund manager at a Japanese asset management firm.
    Economists predict Japan will exit its mild recession early
next year, on expectations that Sunday's election will usher in
a new government intent on aggressive monetary easing, a Reuters
poll showed on Friday.  
    Yields on 30-year JGBs added half a basis
point to 1.945 percent. Those on 20-year bonds 
were flat at 1.695 percent, after earlier rising to 1.705
percent, their highest since late April.
    The superlong sector was also pressured by supply concerns,
as the Ministry of Finance will sell 1.2 trillion yen of 20-year
debt on Dec. 18.
    The so-called "Abe trade" in recent weeks has led to a
weaker yen. It has also pressured prices of longer-dated JGBs on
inflation fears and led the yield curve to steepen.
    On Friday, Japan's Ministry of Finance was slated to meet
with primary dealers in the JGB market to discuss issuance,
although the election will delay Japan's normal budget schedule.
 Issuance plans are usually decided for both the current fiscal
year's supplementary budget and the next fiscal year's initial
budget and announced to the market in late December.
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