TOKYO: Yields on superlong Japanese government bonds edged up on Thursday for the second day in a row, although that of benchmark 10-year debt was unchanged, leading to a steepening of the yield curve.
The yield on both 20- and 30-year bonds added 1 basis point, to 1.655 and 1.875 percent, respectively. The yield on the 30-year debt was not far from a two-week high of 1.895 percent hit on June 27.
The 10-year JGB yield was flat at 0.815 percent, shy of a nine-year low of 0.790 percent hit on June 4, while 10-year JGB futures rose 2 ticks to 143.79.
Yusuke Ikawa, rates strategist at Royal Bank of Scotland in Tokyo, said the steepening of the long-end of the yield curve was an opportunity for investors to buy superlongs.
The 30-day implied volatility for JGB futures options fell to a four-month low on Wednesday, which Ikawa attributed to a seasonality factor.
"At the start of the month or the quarter, Japanese banks are likely to sell options in JGB markets. This is why volatility is declining. Also at the moment, the stable JGB market is a supporting factor for low implied volatility," Ikawa said.
Bank of Japan Governor Masaaki Shirakawa said Europe's debt crisis remains the biggest risk to Japan's economy and could potentially affect its financial system, signalling the central bank's readiness to act if any market turmoil threatens a fragile recovery.
The BOJ is expected to stand pat at a rate review next week unless a sudden yen spike threatens the country's recovery prospects.
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