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JGBs steady to slightly firmer, curve flattens further

jgbTOKYO: Japanese government bond prices were steady to slightly firmer on Tuesday, with the longest maturities well-bid on the unwinding of the steepening trade that became popular after Japanese Prime Minister Yoshihiko Noda called an election.


Ten-year JGB futures ticked up 0.02 point to 144.62 while the benchmark 10-year cash JGB yield stood flat at 0.730 percent, with investors reluctant to test the nine-year low of 0.720 percent hit in July.


Expectations of month-end buying by pension funds supported the market, but traders were unwilling to test recent yield support of 0.720 percent either, partly on caution ahead of the 10-year bond auction next Tuesday.


The longest end of the JGB yield curve outperformed for the second day in a row, as steepening bets that became popular after Noda said he would dissolve parliament about two weeks ago were unwound on profit-taking.


Expectations that main opposition party leader Shinzo Abe, seen as a front-runner to become prime minister after an election next month, will push for radical monetary easing had undermined "superlongs" such as 20-, and 30-year bonds.


The 30-year bond yield fell 0.5 basis point to 1.930 percent, its lowest in a week. The 20-year bond yield also fell 0.5 point to 1.665 percent.


The spread between 10- and 20-year yields dipped to 93.5 basis points from a 13-year high of 95.0 basis points hit last week on so-called "Abe trade" -- bets on a radical easing by the Bank of Japan.


Still, with Japan's election on Dec. 16 still a few weeks away, the market may shift its focus back to global issues especially the US fiscal cliff, market players said.


"I think the 'Abe trade' has run its course for now. Globally bonds will likely be in a holding pattern for the time being, given that US policy makers haven't set schedule for their next talk on fiscal cliff," said Tohru Yamamoto, chief bond strategist at Daiwa Securities.


The market hardly reacted after Greece's international lenders clinched an agreement on reducing the country's debt, as many investors had been expecting policymakers to eventually agree on a deal to avoid Athens defaulting on its payments.


Copyright Reuters, 2012


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