JGB futures dip, 10-yr/30-yr curve flattens

* JGBs narrowly mixed, 10-yr futures dip but 30-yr firmer

* 10-year/30-year yield spread hits narrowest in a year

* Some talk of receiving in short- to medium-term yen IRS

* Finmin Kan seen as front-runner to succeed PM Hatoyama

By Masayuki Kitano

TOKYO, June 3 (BestGrowthStock) – Japanese government bonds were
narrowly mixed on Thursday, with losses limited despite a surge
in Tokyo share prices.

Market players said JGBs drew some support from market
expectations for Finance Minister Naoto Kan to succeed Prime
Minister Yukio Hatoyama, who said on Wednesday he was resigning
ahead of a looming election.

Kan has sounded more positive than Hatoyama about raising the
5 percent sales tax in the future, and is regarded by market
players as recognising the need to rein in rising debt issuance.
[ID:nTOE651077] [ID:nTOE65107Q]

The ruling Democratic Party will vote on Friday to pick a new
leader.

The super-long sector outperformed compared to the 10-year
sector, pushing the 10-year/30-year yield spread down to 79 basis
points, its narrowest level since June 2009. (JP10YTN=JBTC: )
(JP30YTN=JBTC: )

“The 20- and 30-year sectors have been the strongest this
morning,” said Kazuhiko Sano, chief strategist at Citigroup
Global Markets Japan.

“The only thing that can be said about this is that there was
someone who bought without waiting for a dip. You can’t help but
think that market sentiment is strong,” Sano said.

A trader for a European brokerage said cash bonds at the
long-end of the yield curve were supported by recent signs of
demand from index-following players such as pension funds.

Lead June 10-year JGB futures dipped 0.10 point to 140.44
(2JGBv1: ), pulling away from a two-year peak of 140.88 hit last
week.

The benchmark 10-year JGB yield edged up 1.5 basis point to
1.280 percent (JP10YTN=JBTC: ).

Losses in futures and the 10-year cash JGB were limited even
though the Nikkei share average (.N225: ) climbed 3.2 percent,
underscoring the bond market’s firmness.

Market players say one supportive factor for JGBs in June is
the fact that roughly 9 trillion yen ($97.59 billion) in JGBs is
due to be redeemed this month, meaning there may be a need among
investors to buy JGBs to replenish their bond portfolios.

Short- to medium-term yen interest rate swap rates eased,
with the bid rate on four-year swaps dipping to as low as 0.5562
percent (JPYSB6L4Y=: ) at one point, the lowest since September
2005.

A trader for a Japanese bank said players such as Japanese
brokerage houses had been detected receiving short- to
medium-term yen interest rate swaps from around Wednesday evening
into Thursday morning.

“Receiving at the shorter end has been pretty active,” the
trader said.

Market speculation that government pressure on the Bank of
Japan to take additional monetary easing steps would increase if
Kan were to become prime minister could be one possible
explanation, although it was hard to say if that was the actual
driver, said a trader at another European brokerage.

Stock Report

($1=92.22 Yen)
(Editing by Michael Watson)

JGB futures dip, 10-yr/30-yr curve flattens