Japanese government bonds were mostly flat on Friday, erasing earlier gains as safe-haven demand was capped by hopes that risk assets may recover in the near term as Europe showed signs of accelerating efforts to shore up its banking sector. In cash bonds, superlongs such as 20- and 30-year debt, were firmer, underpinned as it emerged that the chance of additional bond sales in the maturities this fiscal year was receding.
"I thought the 10-year yield would break 1 percent today, but it didn't. I think market sentiment has changed after the rescue deal for Dexia ," said Shinji Nomura, chief fixed-income strategist at SMBC Nikko Securities. "European officials may still be behind the curve, but with recent steps, the gap between market perception of them doing too little, too late and their actual actions is narrowing." The 10-year yield was flat at 1.015 percent, having dipped to 1.005 percent.
The five-year yield was up 0.5 basis point at 0.375 percent, with selling ahead of a 2.4 trillion yen ($31 billion) auction of the maturity on Tuesday. December 10-year JGB futures edged down 0.05 point to 142.19, staying below the upper-end of their Ichimoku cloud at 142.53.
The yield curve flattened as superlongs outperformed other maturities after Thursday's 700 billion yen 30-year JGB auction drew moderate demand despite major disruptions due to a technical glitch at a key interdealer. Superlongs were also underpinned by the receding possibility of additional bond sales to fund a reconstruction budget related to the March earthquake.
The 20-year yield declined 0.5 basis point to 1.725 percent and the 30-year yield dropped 0.5 basis point to 1.930 percent. The MOF said on Thursday that it would issue around 10 trillion yen of reconstruction bonds to help finance an already drafted extra budget to cover rebuilding from the March.
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