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JGBs gain on short-covering after long weekend

TOKYO, Nov 6 (Reuters) - Japanese government bonds rose on Monday, with the benchmark yield dropping to a more than one-month low as JGB investors covered short positions as markets opened after a long weekend due to a national holiday.

The benchmark 10-year cash JGB yield shed 2.5 basis points to 0.025 percent, its lowest since Sept. 26.

The 10-year JGB futures contract gained 0.40 point to close at 150.92, its biggest one-day move since the Bank of Japan adopted its "yield curve control" policy in September 2016.

In the super-long zone, the 30-year JGB yield fell 2.5 basis points to 0.820 percent and the 40-year JGB yield was down 3.5 basis points at 1.005 percent.

Japanese markets were closed for a holiday on Friday.

President Donald Trump on Thursday tapped Fed Governor Jerome Powell to become head of the U.S. central bank when Janet Yellen's term expires in February.

The announcement led the U.S. Treasury yield curve to flatten on expectations that Powell will follow Yellen's lead and continue to raise interest rates gradually, while reducing the central bank's $4.5 trillion balance sheet.

Also on Thursday, the Bank of England raised interest rates for the first time in more than 10 years but said it expected only "very gradual" further increases.

"Investors covered short positions today, due to a combination of several factors, including Powell's nomination as well as the Bank of England's decision," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.

"Those things were kind of a catalyst to trigger short covering" in cash bonds, he said. "If you look at German bunds and the UK gilts, they are rallying ahead of JGBs, so it looks like JGBs were slow in reacting to the market environment and suddenly today, they woke up."

On Monday, BOJ Governor Haruhiko Kuroda conceded that the central bank's huge asset buying has led to "very low" JGB market volatility that could exacerbate market swings, a risk of which the BOJ had to be aware.

Under its current policy framework adopted last year, the BOJ guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

Minutes of the BOJ's September policy meeting showed that many on the nine-member board believed the BOJ's current policy was sufficient to achieve 2 percent inflation, although one member dissented.

In its buying operations on Monday, the BOJ offered to purchase 280 billion yen ($2.45 billion)of one- to three-year JGBs and 300 billion yen of three- to five-year JGBs, as well as 25 billion yen of inflation-indexed bonds, consistent with its previous purchase amounts for those zones. ($1 = 114.3800 yen) (Reporting by Tokyo markets team; Editing by Sunil Nair)