JGBs skid, taking cue from Treasuries on Fed tapering hints
* 10-yr yield rises but recent range intact
* 10-yr futures touch lowest level since May 30
TOKYO, June 21 (Reuters) - Japanese government bond prices skidded on Friday, pushing the benchmark yield to a one and a half-week high in line with slumping Treasuries after this week's hints from Federal Reserve Chairman Ben Bernanke that the U.S. central bank could taper its stimulus. Diverging monetary policy outlooks between the Fed and Bank of Japan could push the spread wider between Treasuries and JGBs and in turn fuel yen weakening, strategists and market participants said. Crédit Agricole strategists said in a recent note that they expect the spread between U.S. and Japanese benchmark yields to widen further to around 185 basis points by the end of 2013. "Much of the movement today was because of Treasuries," said Le Ngoc Nhan, a strategist at Morgan Stanley MUFG Securities in Tokyo. "But the Fed is more in tightening mode now, and the BOJ is in easing mode," he said. The 10-year JGB yield rose 4 basis points to 0.875 percent after trading as high as 0.890 percent, its highest since June 12, but still within the 0.800 to 0.900 percent range in which it has traded the past three weeks. Ten-year JGB futures withered 0.48 point to 142.10, dipping as low as 141.80 at one point in morning trade, their lowest since May 30.
On April 4, the BOJ unveiled the world's most intense burst of monetary stimulus, promising to inject $1.4 trillion into the economy in less than two years to meet its pledge of achieving 2 percent inflation. On Friday, BOJ governor Haruhiko Kuroda stressed that financial markets will likely stabilise over time, reflecting improvements in Japan's economy, and said the central bank would make adjustments as needed. Bernanke hinted at an end to stimulus, saying on Wednesday that the economy is improving enough for the Fed to begin scaling back its monthly $85 billion in asset purchases. His remarks helped push the benchmark 10-year U.S. Treasury yield to 2.471 percent on Thursday, the highest intraday level since August 2011, according to Reuters data. "JGBs haven't sold off as much as Treasuries, because of different supply/demand conditions," said a fixed-income fund manager at a Japanese trust bank in Tokyo. The superlong tenor also came under pressure, with both the 20- and 30-year yields climbing to fresh one-month highs. The 20-year yield rose 3 basis points to 1.760 percent, and the 30-year yield also added 2 basis points to 1.880 percent. Japanese long-term interest rates are not necessarily spiking when seen from a long-term perspective, Vice Finance Minister Shunichi Yamaguchi said in parliament on Friday.
He also said he trusts that the BOJ will respond appropriately to any bond market volatility with flexible market operations.