TOKYO: Japanese government bond prices were mostly higher on Thursday, with the Bank of Japan's unexpected easing this week continuing to underpin demand at the shorter end, steepening the curve.
"Our traders say the BOJ easing has made it very difficult to sell bonds," said a fixed-income trader at a Japanese brokerage.
The five-year yield dropped a basis point and a half to a new three-month low of 0.305 percent as market players expect the finance ministry's auction of 2.5 trillion yen 5-year notes to meet firm demand.
The 5-year yield could fall below 0.3 percent, Barclays Capital strategist Noriatsu Tanji said in a note, but he warned it might not stay there for long given that the spread between two- and five-year yields has never fallen below 20 basis points for more than a short time.
The two- to five-year spread stood at 20 basis points, off its year-to-date high of 22.5 basis points, last hit earlier this month.
The yield on 10-year JGBs lost a basis point to 0.950 percent, moving closer to a 14-month low of 0.935 percent hit last month.
Ten-year JGB futures rose 0.17 point to 142.82.
The shorter end of the yield curve has been benefiting most from the BOJ's move to spend an extra 10 trillion yen ($127.57 billion) on JGBs as part of its asset-buying programme, as the central bank only purchases bonds with up to two years left to maturity.
The curve steepened as longer durations continued to lag the BOJ easing-inspired rally. The 30-year yield was flat at 1.935 percent and the 20-year yield lost half a basis point to 1.735 percent.
Foreign investors continued to add to JGB holdings in the week to Feb. 11, with net buying of 40.3 billion yen, according to finance ministry data released early on Thursday. That followed net purchases of 1.0221 trillion yen the week before, which was the largest amount since May 2011.
Japanese investors, meanwhile, increased their net foreign bond buying to 1.0083 trillion yen in the latest week, their sixth straight week of net purchases.
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