April 9, 2013 / 6:16 AM / 5 years ago

TREASURIES-Bonds steady in Asia, supported by Japan buying hopes

TOKYO, April 9 (Reuters) - U.S. Treasuries steadied in Asia on Wednesday after a drop the previous day, drawing support from expectations the Bank of Japan’s aggressive monetary easing may prompt Japanese investors to buy more U.S. bonds as an alternative to domestic bonds.

* The yield on 10-year notes stood at 1.742 percent , little changed from late U.S. trade on Monday but off a four-month low of 1.677 percent hit after surprisingly weak U.S. jobs data on Friday.

* “There are expectations that Japanese investors will be forced to buy more U.S. bonds after the BOJ’s super-easing,” said Tomoaki Shishido, fixed income analyst at Nomura Securities.

* Shishido also said a huge increase in market volatility in Japanese government bonds since the BOJ’s easing last week is another reason U.S. bonds look increasingly attractive to Japanese investors.

* The 10-year JGB yield last week fell to a record low near 0.315 percent only to almost double to 0.620 percent within hours. It last stood at 0.525 percent on Tuesday.

* U.S. bond yields rose on Monday as Wall Street shares recovered and also due to rise in long-dated swap rates , or the cost of exchanging fixed-rate interest payments for floating rates.

* Banks were hedging their positions relating to structured notes called power reverse dual currency notes, traders said, causing swap rates to rise.

* Banks essentially need to adjust their position by paying swap interest rates if the yen weakens sharply. The yen fell about six percent since the BOJ’s easing, hitting a four-year low of 99.67 yen per dollar at one point on Tuesday.

* The 30-year swap spread, the difference between the 30-year Treasuries yield and the swap rate, was quoted at minus 3.50 on Tuesday. The spread was last that slim in early January 2009.

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