TOKYO: The Japanese government bond yield curve steepened further on Thursday, with long-dated bonds underperforming as European efforts to aid the region's financial sector bolstered risk appetite and dented the allure of safe haven debt.
But medium-dated JGBs rose, as cash-rich Japanese investors rotated their positions from long-dated bonds, while bullish momentum was expected to continue with the slowdown of the global economy.
"There aren't many sellers after investors were forced to take profits before the half-year book closings last month," said a trader at a US brokerage firm.
"Buy-and-hold investors are waiting for yields to rise in order to seek decent income gains ... especially since they are trying to maintain their performance while there is higher-yielding debt on their books that is maturing."
The 10-year JGB yield inched up 1 basis point to 0.975 percent, after slipping to match a 10-month low of 0.965 percent marked in September. The five-year yield was down 0.5 basis point at 0.335 percent.
With many players seeing limited room for JGB yields to rise, one trader at a Japanese bank said 10-year yields at 1.05 to 1.1 percent would mark a good level to buy.
December 10-year JGB futures were flat on the day at 142.73 after declining as low as 142.62.
Charts continue to indicate bullish momentum with futures holding above the 20-day moving average at 142.59 and the Ichimoku kijun-sen at 142.56.
Recent buying interest among foreign investors also underpinned strong momentum for JGBs. Foreign investors bought a net 258.8 billion yen ($3.4 billion) of Japanese bonds in the week ending Oct. 1, after offloading them in the previous two weeks, data from Japan's Ministry of Finance showed.
They also bought a net 431.3 billion yen worth of yen bills as the euro zone debt crisis and concerns over a slowdown in the global economy apparently increased the safe-haven allure of JGBs.
Market participants expected no easing steps at a two-day Bank of Japan policy meeting that ends on Friday.
But if the European Central Bank cuts its policy rate when it announces a decision at 1145 GMT on Thursday, expectations of monetary easing by the BOJ will rise, said Koji Ochiai, chief market economist at Mizuho Investors Securities.
"It will depend on how risk assets react to the ECB decision, but if a rate-cut decision leads to a sharp yen rise and falls in Japanese shares, the BOJ may step up their amount of asset purchases at another policy next meeting later this month," he added.
The yield curve steepened at the long end with superlongs such as 20 and 30 years underperforming, as position adjustments ahead of a 30-year auction next week weighed on those maturities, players said. The 20-year yield climbed 1.5 basis point to 1.705 percent and the 30-year yield was up 1 basis point at 1.915 percent.
The 10- and 30-year yield spread expanded to its widest in two weeks at 93.5 basis points, from a 1-1/2 month low of 87.5 basis points marked in late September.
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