JGBs firm as stocks sink, BOJ move eyed; 10-yr yield at 4-week low
* Decent demand at 5-yr sale, with bid-to-cover ratio of 3.44
* Superlong tenor outperforms as life insurers said to buy
TOKYO, Jan 16 (Reuters) - Japanese government bond prices rose on Wednesday, with benchmark yields falling to a four-week low, as a sharp pullback in Japanese stocks and heightening anticipation of more Bank of Japan stimulus lifted sentiment. The improved tone piqued demand at a sale of five-year notes, and prompted life insurance companies to seek out bargains in the recently underperforming superlong zone. "With expectations of BOJ easing again, the strength in JGBs might continue through next week," said Tomohiro Miyasaka, an analyst at Credit Suisse in Tokyo. Sources close to the central bank said it would consider expanding stimulus again and double its inflation target to 2 percent at its Jan. 21-22 meeting. The 10-year JGB yield fell 1.5 basis points to 0.750 percent, its lowest since Dec. 18, moving further away from a 4-1/2-month high of 0.840 percent touched several times last week. The benchmark 10-year JGB futures contract ended up 0.17 point at 144.31 after rising as far as 144.35, its highest since Dec. 14, fuelled by a drop in equities.
SUPERLONGS OUTPERFORM The Nikkei share average fell 2.6 percent on Wednesday, its biggest one-day drop in eight months, toppling from a nearly three-year high hit the day before as a rebound in the yen prompted investors to take profits on exporters' shares. The superlong sector outperformed, with the yield on the 20-year bond down 3 basis points at 1.730 percent and the 30-year bond yield down 4 basis points at 1.960 percent. On Friday, the 20-year yield rose as high as 1.805 percent, its highest since April 2012, and the 30-year yield rose as high as 2.025 percent, its highest since August 2011. The superlongs received a lift after the government on Tuesday announced its additional bond issuance plans for the fiscal year to end-March to fund further economic stimulus. "There is less fear about additional issuance now," said a fixed-income fund manager at Japanese asset management firm in Tokyo. The finance ministry will issue an additional 300 billion yen ($3.4 billion) a month in government debt next month and in March to fund stimulus spending, which is a smaller increase than the 700 billion to 800 billion yen some market participants had estimated. On Wednesday, the Ministry of Finance offered 2.5 trillion yen of five-year notes, reopening issue number 107 with a coupon of 0.2 percent, matching the coupon of the past eight sales. The notes sold at a lowest price of 100.20, slightly above market expectations of 100.19. The sale drew bids of 3.44 times the amount offered, down from the previous sale's bid-to-cover ratio of 3.54, but still indicating strong demand, and the tail between the average and lowest accepted prices was 0.01, matching last month's offering. The five-year JGB yield was flat at 0.160 percent, after it fell as low as 0.150 percent on Friday, its lowest since Dec. 6. "The five-year note's moves on Friday took some investors by surprise, and some believe it was overdone, although with the BOJ supporting the short end, there is little risk in holding five-years," the Tokyo fixed-income fund manager said.