TOKYO: Japanese government bond prices rose on Monday, taking yields on 5- and 10-year notes to their lowest levels since the third quarter of 2010, reflecting expectations that the Bank of Japan will take further easing steps this week and extend the duration of bonds it purchases.
The market consensus is that the BoJ will ease further at its Friday meeting by expand its 65 trillion yen ($796.5 billion) asset-buying and loan programme by 5 trillion or 10 trillion yen, with the increase to be used to buy government bonds. The BoJ might also extend the buying operation's to June 2013 from end-2012.
The central bank is also expected to extend the duration of the bonds it purchases through its asset-buying programme, under which it now buys bonds with up to two years left to maturity. A report on Monday in the Asahi newspaper said the BoJ will consider extending duration to buy bonds with three to five years left to maturity.
"Investors had already priced in further easing as well as duration extension, and Japanese banks have been actively buying the short end. The latest report explicitly mentioned that an extension to five years was possible, prompting some to increase their buying," said a fixed-income fund manager at a Japanese trust bank.
The yield on the latest 10-year JGBs fell 1.5 basis points to 0.915 percent, its lowest level since November 2010.
The June 10-year JGB futures added 0.25 point at 142.98, after earlier rising to a two-month high of 143.00.
The 5-year yield fell 1.5 basis points to 0.265 percent, their lowest level since October 2010.
The 20-year JGB yield fell 2.5 basis points to 1.700 percent, its lowest level since November 2011.
That tenor was expected to come under some selling pressure ahead of Tuesday's 1.2 trillion-yen sale of 20-year bonds by the finance ministry.
Reuters weekly JGB survey showed on Monday that sentiment has turned more bearish as anticipated easing steps by the Bank of Japan this week are priced in, providing scant support for bond prices.
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