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Benchmark JGBs rise, superlongs underperform; 10-year sale eyed

Tuesday, 2 Oct 2012 | 11:02 PM ET

TOKYO, Oct 3 (Reuters) - Benchmark Japanese government bonds were slightly firmer on Wednesday, with the 10-year yield retracing an eight-week low as uncertainty of the timing of Spain's bailout request sapped investors' appetite for riskier assets.

* But the yield curve continued to steepen as the superlong tenor underperformed, with few bargain hunters willing to step in ahead of 20- and 30-year auctions later this month.

* Spain's Prime Minister Mariano Rajoy said on Tuesday a request for European aid was not imminent. He also said Spain's central government had agreed with the country's regional leaders on a framework for fiscal reform. .

* "The short end is anchored by the Bank of Japan's monetary policy, and the long end is pressured by supply concerns and uncertainty about Europe and about global growth, leaving the 10-year sector as the only appealing option," said a fixed-income fund manager at a Japanese asset management firm in Tokyo.

"This should help demand at tomorrow's sale, depending on the coupon," he added.

* On Thursday, Japan's Ministry of Finance will conduct its monthly auction of 10-year notes. If cash bond yields remain at low levels, the coupon for that sale could be set below the 0.8 percent at which it was set for the past three sales.

* The 10-year yield fell half a basis point to 0.755 percent, retracing its Tuesday low, which was its lowest level since Aug. 7.

* Ten-year JGB futures ended morning trade flat at 144.29, after rising to an eight-week high of 144.33.

* Yields on 20-year and 30-year bonds rose 1 basis point each, to 1.650 percent and 1.900 percent, respectively.

* Later in the global session on Wednesday, investors will be watching the ADP employment report, which is expected to show that employers added 113,000 jobs in September. A downside surprise would give U.S. Treasuries a lift, which would in turn underpin JGBs.

The key monthly U.S. employment report will come on Friday. Economists predict the unemployment rate will show a rise to 8.2 percent from 8.1 percent in August.

(Reporting by Lisa Twaronite; Editing by Simon Cameron-Moore)

((lisa.twaronite@thomsonreuters.com)(81 3 6441 1870 Reuters Messaging: lisa.twaronite.thomsonreuters.com@reuters.net))

Keywords: MARKETS JAPAN JGB/