JGBs yield curve steepens as Abe fuels BOJ easing expectations
* 5-yr notes outperform; yield matches December's 9 1/2-yr low
* 30-yr yields touch 16-month high; 5-, 30-yr yield spread at widest since March 2010
* Benchmark 10-yr yield off highs as regional banks buy
TOKYO, Jan 11 (Reuters) - Japanese government bonds soared at the short end of the yield curve while sagging at the long end on Friday, on growing expectations that the new government under Prime Minister Shinzo Abe will push the Bank of Japan to ease policy further. Abe said in an interview in the Nikkei newspaper published on Friday that the BOJ should consider maximising employment as a monetary policy goal to help boost the economy. "There are so many cross-currents at the moment. You've got the BOJ potentially buying a lot more bonds in the front end, increased issuance across the curve, and hopes for economic recovery, which is putting steepening pressure on the curve," said Neale Vincent, strategist at Nomura Securities in Tokyo. Abe's remarks helped take the yen to a 2-1/2-year low against the dollar of 89.35 yen, which in turn bolstered the Nikkei stock average 1.4 percent to a 23-month high, and took away some of the appeal of safe-haven fixed income assets. But expectations of easier monetary policy underpinned shorter- and medium-term maturities, with the 5-year JGB yield skidding as low as 0.150 percent. That was its lowest since Dec. 6 and within sight of its lowest level since June 2003, when it hit a record low of 0.145 percent on the country's banking crisis. It last stood at 0.165 percent, down 2.5 basis points. The BOJ buys JGBs with up to three years of remaining maturity in its asset purchase programme, so expectations of more central bank buying have effectively anchored yields on shorter maturities. The BOJ will consider easing monetary policy again at its Jan. 21-22 meeting, likely by increasing its 101 trillion yen asset buying and lending programme, according to sources familiar with the central bank's thinking. "As long as the BOJ keeps its easy policy, there is little risk in holding 5-year notes," said a fixed-income fund manager at a Japanese asset management firm.
In contrast to the 5-year zone, the yield on 30-year bonds rose 1.5 basis points to 2.015 percent after hitting a morning high of 2.025 percent, its highest since August 2011. The 30-year yield's spread over 5-year yields stood at 1.855 percentage points, its widest since March 2010. The yield on the 20-year bond was flat at 1.790 percent, off an intraday high of 1.805 percent, its highest since April 2012. Expectations for more easing were also fuelled by data on Friday showing Japan posted a current account deficit of 222.4 billion yen ($2.5 billion) in November, the first deficit in 10 months and far larger than economists' median forecast. On Friday, the Japanese government approved a 10.3 trillion yen economic stimulus package. A government official said it will sell around 5 trillion yen more bonds than originally planned for the current fiscal year to fund it.
The 10-year JGB yield inched down half a basis point to 0.815 percent, after matching a 4-1/2 month high of 0.840 percent hit on Monday. Regional banks were said to be bargain hunting, according to market participants. The benchmark 10-year JGB futures contract ended up 0.29 point at 143.75 on heavy volume of 55,021 contracts, the highest since Dec. 6. In a potentially bullish signal, futures ended above their 14-day moving average for the first time since Dec. 10 This week, Nomura's Vincent said he has been recommending 7 to 9-year asset swaps. "Asset swaps are expensive in most zones, because swaps have been paid a lot, but that area remained cheap. If rates rise or the yen cheapens, asset swaps tend to do well," he said.