Benchmark JGBs rise as fears of slowing growth hit stocks

* Superlongs underperform ahead of Thursday's 30-year sale

* 10-, 30-year yield spread at widest since March 2008

By Lisa Twaronite

TOKYO, Oct 10 (Reuters) - Benchmark Japanese governmentbonds rose on Wednesday as slumping stocks offset the supplyconcerns that weighed on longer maturities ahead of the nextday's 30-year sale.

The Nikkei share average skidded 2 percent to atwo-month closing low on fears that slowing global growth wouldhurt upcoming corporate earnings results.

The JGB yield curve steepened as investors sold superlongdebt to make room in their portfolios to buy at the auction,with the spread between the 10-year and 30-year yields rising ashigh as 1.165 points, its widest since March 2008.

The Ministry of Finance will offer 700 billion yen ($8.9billion) of 30-year bonds on Thursday with an expected coupon of1.90 percent, matching that of the previous sale which was setbelow the 2.0-percent level for the first time since July 2003.

Despite the lower coupon, demand was decent at last month'ssale, and many investors and expect a smooth sale this month aswell with the 30-year bond at its current levels.

"I'm not pessimistic. I think there is enough value in the30-year bond," said Tadashi Matsukawa, head of Japan fixedincome at Pinebridge Investments in Tokyo.

"The 30-year sector has underperformed a lot versus the10-year sector, so I think there's value at this level, andinvestors are willing to buy," he said.

JGBs also got support from firm U.S. Treasuries prices,which rose after the International Monetary Fund warned aboutslowing growth on Tuesday.

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With the risk that Japan's gross domestic product growthwill turn negative over the next few quarters, and in theabsence of any fiscal stimulus activity, strategists at RBSSecurities Japan say it is unclear whether monetary policy cansustain inflation expectations.

"Investors, hence, might at least prefer bull flattening inanticipation of deflation concerns. We expect sharp movement ina reversal because steepening appears to be the existingconsensus position," they said in a note to clients onWednesday.

The 10-year yield fell half a basis point to0.765 percent, moving back towards an eight-week low of 0.755percent hit last week.

Ten-year JGB futures ended up 0.03 point at 144.18,after rising as high as 144.23.

Futures briefly broke below their 14-day moving average onTuesday for the first time since pulling above it on Sept. 24.But they retook it before the close and on Wednesday theyremained solidly above that technical level, now at 144.09.

Superlong maturities drooped, with yields on 30-year debt

adding 1.5 basis points to 1.930 percent, andthose on 20-year bonds rising 1 basis point to1.660 percent. ($1 = 78.240 Japanese yen)

(Reporting by Lisa Twaronite; Editing by Chris Gallagher)

((lisa.twaronite@thomsonreuters.com)(81 3 6441 1870 ReutersMessaging: lisa.twaronite.thomsonreuters.com@reuters.net))


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