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JGB 10-year yield hits 5-month low on view Fed to delay tapering

Tuesday, 22 Oct 2013 | 10:35 PM ET

* 20- and 30-year yields also fall to 5-month low

* 10-year JGB futures climb to 5-month high

TOKYO, Oct 23 (Reuters) - Japanese government bond prices rose on Wednesday, with the 10-year yield hitting a five-month low, buoyed by gains in U.S. Treasuries after slower U.S. job growth reduced expectations the Federal Reserve will cut its stimulus this year.

The 10-year yield was down 1 basis point at 0.605 percent after earlier touching 0.600 percent, its lowest since May 9.

Yields on longer maturities also fell to a five-month low, leading to a flattening of the yield curve. The 30-year yield eased 2.5 basis points to 1.580 percent and the 20-year yield fell 2 basis points to 1.450 percent.

Overnight, yields on benchmark 10-year U.S. Treasuries fell 9.7 basis points to 2.512 percent to their lowest level since July 24 after data showed September job growth slowed to its weakest pace in 15 months.

A Reuters polled conducted on Tuesday showed nine of 15 U.S. primary dealers see the Fed tapering in March, with many of them blaming Washington's fiscal impasse for having a "significant" impact on the Fed's timing to scale back its stimulus.

In addition, the Bank of Japan offered on Wednesday to buy 800 billion yen ($8.2 billion) worth of JGBs with residual maturities of between one and more than 10 years, as part of its bond-buying programme to revive the world's third-largest economy.

JGB yields have been on a downtrend lately, helped by buying this month from Japanese investors including pension funds and life insurance companies. October is the start of the second half of Japan's fiscal year.

Nippon Life Insurance plans to increase its yen bond holdings in the six months to March but is also ready to buy foreign bonds as well if it can buy dollars and euros on dips, the company said on Tuesday.

Although the BOJ's aggressive monetary policy in April sparked speculation that many Japanese life insurers might rush into foreign bonds to earn higher returns, Nippon Life's stance is a reflection of little change in industry investment patterns.

But Barclays Capital analysts said they were wary about chasing JGB prices higher as buying by Japanese investors may run its course in the second half of October.

"Although the room for flattening in 10s and longer could be tested again toward month-end, we believe participants should avoid chasing any decline in 10-year yields," they wrote in a note.

Ten-year JGB futures added 0.15 to 144.94, hitting their highest in five months.