JGB yields rise on U.S. jobs, 20-yr underperforms ahead of auction
* BOJ governor nominee promises swift monetary action
* Trading volume in 10-year JGB futures falls to 1-wk low
TOKYO, March 11 (Reuters) - Yields on Japanese government bonds rose on Monday after data showed a sharp increase in U.S. job growth in February, but expectations that the Bank of Japan will adopt more forceful monetary easing helped limit the rise.
U.S. employers added 236,000 workers last month, far outstripping expectations for a gain of 160,000, showing signs the U.S. economic recovery was gathering pace.
But JGB losses were capped by the central bank's easing expectations under new leadership. Haruhiko Kuroda, the government's nominee to head the BOJ, promised on Monday to move quickly to implement fresh monetary stimulus to lift the ailing economy, a case underlined by a surprisingly steep fall in a core machinery orders in January.
The 10-year yield rose 1 basis point to 0.660 percent after shedding 2.5 basis points on Friday following a decent sale of 30-year bonds implied solid demand for superlong maturities and prompted a wave of shortcoverings.
"The next BOJ meeting under Mr Kuroda will ease monetary policy which probably should be an aggressive one. The central bank is likely to extend purchase of JGBs to five years from the current three years," said Akito Fukunaga, chief rates strategist at Royal Bank of Scotland in Tokyo.
"The JGB yield decline trend will continue," he added.
Ten-year JGB futures eased 6 ticks to 144.97 after hitting a record high of 145.50 in the previous session. Trading volume slipped to a one-week low, with 28,283 contracts changing hands, compared with last week's daily average of 52,613.
The five-year yield inched up 0.5 basis point to 0.110 percent, still not far above its record low of 0.095 percent touched on March 4. The yield rose ahead of a debt sale of 2.7 trillion yen ($28 billion) of similar maturities on Tuesday.
Analysts said uncertainty on whether the central bank will buy more longer-dated debt will keep trading in the long-end of the yield curve volatile.
"The over 10-year sectors, which have been very volatile for the past one to two weeks, will depend on whether the BOJ will buy from April," Fukunaga said. "It's uncertain, so trading in the over 10-year sectors will be very volatile."
The 20-year yield gained 3.5 basis points to 1.630 percent, pulling away from a near 10-year low of 1.450 percent hit last Tuesday. There will be an auction of 1.2 trillion yen worth of similar maturities on Thursday.
Before that auction, "I think dealers just want to get rid of the paper," said Tadashi Matsukawa, head of Japan fixed-income at PineBridge Investments.
On Friday, the 20-year yield moved in a wide trading range of 8 basis points and the 30-year yield swung in an 18-basis point range.
The 30-year yield edged up 1.5 basis points to 1.770 percent on Monday.
"The market is, I would say, too fast, too volatile... I would probably trade JGB futures or 10-year sector rather than 20-year and 30-year," Matsukawa said.
Barclays Securities said the superlong sectors appeared to have substantially priced in the expected expansion in the central bank's JGB purchases.
"Still, we do not expect this discounting to fade completely for now, and cannot foresee any major upturn in yields until either easing-related news has passed or investors start taking profit in April," it wrote in a note.
"Any brief swing in the markets in connection with JGB auctions could encourage investors to test the downshifted yield range. We believe 10-year yields of 0.70 percent will represent the top end of the range for the foreseeable future," Barclays said.