Forex trading store

By Shinichi Saoshiro

TOKYO, March 16 (Reuters) – The Japanese government bond yield curve steepened on Tuesday as midterm yields declined ahead of further policy easing expected from the Bank of Japan while superlong yields climbed with the market bracing for a supply of new 20-year bonds.

The five-year/20-year yield spread widened by 1 basis point to 164 basis points, edging closer to a decade-high above 167 basis points struck last week.

The 20-year yield edged up 0.5 basis point to 2.145 percent, extending losses from the previous day and pulling back towards a three-month high of 2.175 percent hit last month, as brokerages continued to sell in earlier trade to make room on their books for Tuesday’s auction.

Japan offered 1.1 trillion yen of 2.2 percent coupon 20-year JGBs on Tuesday. The sale’s outcome will be released at 0345 GMT.

‘The auction result is expected to be ok, as investors like some life insurers will be looking to stock up before the fiscal year-end (on March 31),’ said Takafumi Yamawaki, a senior rates strategist at BNP Paribas Securities.

At current yield levels other bond investors may also purchase the new 20-years to get an early start in investments for the next fiscal year, Yamawaki said.

But market players do not expect demand to be overly strong, saying life insurer interest is slowly shifting towards 30- and 40-year bonds as they better match their liabilities compared with 20-year maturities.

Another focus was the two-day BOJ policy meeting starting on Tuesday. The central bank, under steady political pressure to help fight deflation, is considering easing policy again at the meeting, ending on Wednesday, sources have said.

BOJ watchers say some of the easing steps the central bank may consider include increasing the amount of funds it offers through a three-month funding operation introduced in December, extending the duration of this operation or both.

Prospects of easing nudged the five-year yield down 0.5 basis point to 0.505 percent.

The benchmark 10-year yield rose 0.5 basis point to 1.345 percent.

June 10-year futures dipped 0.04 point to 138.88.

(Reporting by Shinichi Saoshiro; Editing by Joseph Radford)

((shinichi.saoshiro@thomsonreuters.com; Reuters Messaging: shinichi.saoshiro.reuters.com@reuters.net; +81-3-6441-1774)) ($1=90.48 Yen) Keywords: MARKETS JAPAN JGB

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