February 28, 2013 / 3:21 AM / in 5 years

JGB 10-yr yield holds near decade low; superlongs outperform

TOKYO, Feb 28 (Reuters) - The benchmark Japanese government bond yield held close to a 10-year low on Thursday as the government nominated dovish candidates to helm policy at the Bank of Japan, while superlong maturities outperformed on month-end buying.

* The government of Prime Minister Shinzo Abe tapped Asian Development Bank President Haruhiko Kuroda to be BOJ governor after current governor Masaaki Shirakawa steps down on March 19, and nominated academic Kikuo Iwata and BOJ official Hiroshi Nakaso as deputy governors.

Kuroda supports increased purchases of government bonds, and has suggested two years as an appropriate timeframe for the BOJ to meet its 2 percent inflation target.

* The 10-year yield was flat at 0.665 percent, its lowest since June 2003 after dropping for five straight sessions.

* Ten-year JGB futures ended morning trade at their session high of 145.04, up 0.05 point at their highest since Dec. 10.

* JGBs have benefited from expectations that Shirakawa’s successor will implement aggressive monetary easing, but some strategists fear the bond market has priced in too much, too soon.

* “It’s all on expectations, with nothing concrete just yet. It’s very difficult to justify this kind of market movement,” said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.

* Superlong bonds outperformed on month-end demand. Funds often buy longer-term debt at the end of a month to extend the duration of their portfolios.

The 30-year yield shed 1.5 basis points to 1.835 percent, its lowest since Aug. 23, and the 20-year yield dipped 2 basis points to 1.630 percent, its lowest since Aug. 15.

* The five-year yield crept up half a basis point to 0.120 percent from a record low of 0.115 percent.

* The two-year note was untraded, with its yield last at 0.04 percent, as the Ministry of Finance offered 2.7 trillion yen ($29.5 billion) of that maturity.

The sale was expected to proceed smoothly as it has in recent months, as the BOJ now buys most of the new issuance in that tenor.

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