TOKYO: Japanese government bonds mainly fell on Monday with longer maturities weighed by position adjustments ahead of a 10-year auction the next day.
But short- and medium-term notes were unchanged, supported by ample cash in money markets and the prospect of the Bank of Japan's easy monetary policy continuing.
Brokers and regional banks were seen adjusting positions ahead of the 2.2 trillion yen ($26 billion) 10-year JGB sale on Tuesday, although market players said trading was limited. Analysts expect the tender to be a re-opening of the 1.3 percent coupon No. 313 issue sold in March.
Analysts said 10-year debt looked cheaper than paper such as five-year bonds, but that it was unlikely to see strong bids as market participants are wary about Japan's growing fiscal burden after the earthquake on March 11.
The 10-year yield climbed to 1.295 percent, its highest since March 10, while the five-year yield was unchanged at 0.505 percent.
The five-year/10-year yield spread widened to 79.0 basis points, the highest since mid-September.
June 10-year futures inched up 0.04 point to 139.23, staying near Friday's close of 139.19.
NUCLEAR UNCERTAINTY
Uncertainty over the quake-stricken nuclear plant in Fukushima, northeast of Tokyo, continued to weigh on JGBs.
"We haven't seen major developments in the situation at the nuclear plant, and it could take a few more months to be cleared. It is obvious that this kind of uncertainty could push down the Japanese economy," said a fund manager at a Japanese asset management firm.
The yield curve steepened as yields on superlongs -- bonds with maturities over 10 years -- were weaker than other maturities. The 20-year yield and 30-year yield rose 2.5 basis points to 2.060 percent and 2.200 percent respectively, their highest levels since mid-March.
Players said superlong yields may inch up as the steepening bias on the curve continues, but those of shorter maturities could fall as the BOJ sticks to its ultra-easy policy.
The government last month estimated direct damage from the quake and tsunami at as much as $310 billion, making it the world's costliest natural disaster.
But the estimate does not take into account the effect of power blackouts on factory output and business sentiment. A former senior Bank of Japan official said in a interview with Reuters on Monday that it could weigh on Japan's economy for several years and nudge it into a contraction in the financial year that began on April 1.
The BOJ is expected to revise down its assessment of the economy at a meeting ending on Thursday and to discuss launching a new scheme to offer quake-hit financial institutions one-year loans at an interest rate of 0.1 percent, sources say.
The market is also focusing on the stance taken by BOJ Governor Masaaki Shirakawa on the idea of the BOJ underwriting JGBs.
Shirakawa has stressed that the central bank should not directly underwrite government debt.
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