JGBs fall on struggling Treasuries, Nikkei bounce

* 10-year yield climbs to 3-week high, curve steepens

* Some see yield rise helpig demand at next week’s 10-yr sale

* Firm demand expected for new 2-yr JGB despite modest coupon

By Shinichi Saoshiro

TOKYO, Oct 27 (BestGrowthStock) – Japanese government bonds fell on
Wednesday, with the benchmark 10-year yield rising to a
three-week high, after a continued retreat in U.S. Treasuries and
a bounce in Tokyo stocks dampened sentiment.

The yield curve steepened, retracing some of the modest
flattening seen earlier this week, with the market wary of
potential fallout should easing by the U.S. central bank not live
up to expectations that have been heightened over the past few
weeks.

“The fall in Treasuries added to the bearish mood which had
been brewing during the last few days of losses,” said Makoto
Yamashita, chief Japan interest rate strategist at Deutsche
Securities.

“The market appears to have perhaps been a bit excessive in
the way it has priced in easing, and what we are seeing is a
reaction against this.”

December JGB futures (2JGBv1: ) shed 0.17 point to 143.25.

The 10-year JGB yield (JP10YTN=JBTC: ) climbed 3 basis points
to 0.930 percent, after hitting a three-week high of 0.940
percent just prior to easing by the Bank of Japan’s on Oct. 5.

The 10-year yield hit a seven-year low of 0.820 percent after
the easing, a drop market players say may have been overdone.

Longer-dated JGBs underperformed, with losses by
shorter-dated debt — which benefit more from the central bank’s
low rate policy — kept modest.

The long-end is likely to remain under selling pressure ahead
of next week’s 10-year JGB sale, although the rise in yields
could help make the new paper more palatable to investors, market
players said.

“The 10 years have been met by steady bargain hunting during
the recent yield rise, so underlying demand is there,” said a
trader at a European brokerage.

“The rise in yields should help the auction, since buyers
would not have been excited to see the offering held when the
10-year yield was well below 0.900 percent.”

The 10-year/20-year yield spread widened to 86 basis points,
edging back towards a 2-