TOKYO: Yields on benchmark Japanese government debt fell to near a three-month low on Thursday, though superlong maturities underperformed as some market players put on steepening trades ahead of a 40-year bond sale next week.
The 20-year yield added 0.5 basis point to 1.665 percent, while the 30-year yield was also up 0.5 basis point at 1.780 percent.
In contrast, the 10-year yield slipped 1 basis point to 0.740 percent, just shy of a three-month low of 0.730 percent touched on Tuesday. The five-year yield dipped 0.5 basis point to 0.275 percent.
"It seems that someone is starting to buy short-end, or the 10-year sector, and selling the long-end of the curve as part of the steepening trade," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.
"Ahead of the 40-year auction, I think that makes sense. The BOJ purchased (JGBs) on Monday and Wednesday. They came in twice ... The next time they will come in is probably after the 40-year auction," he said, adding that those investors were likely to keep on their steepening trades until after the debt sale.
The Ministry of Finance is to sell 400 billion yen ($4.1 billion) worth of 40-year bonds on Tuesday.
Ten-year JGB futures rose 0.13 point to 144.07, exceeding their five-day moving average of 144.04 and not too far from a three-month peak of 144.24 hit on Tuesday.
The 10-/30-year spread stood at 104 basis points, off a two-week low of 102 basis points reached on Tuesday, while the spread between 10- and 20-year yield was at 92.5 basis points, also up from a two-week trough hit on Aug. 13.
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