JGBs mostly higher; curve steepens as superlongs retreat

* Traders expect fresh investor money in new fiscal year

* Superlongs slip on fiscal worries after disaster

* Short-term JGBs look cheap given expectation of easy
policy

* Money markets calm, few bids for BOJ’s fund offer

TOKYO, March 29 (Reuters) – Most Japanese government bond
prices ticked up on Tuesday on expectations fresh investor money
in the new fiscal year will support the market, but superlongs
dipped on worries about the cost of rebuilding after the triple
disaster of earthquake, tsunami and nuclear crisis.

In the money market, short-term rates including the
benchmark overnight call rate were steady in a sign that most
banks have secured enough cash for the end of fiscal year on
Thursday.

Bond trading was subdued as most domestic players preferred
not to take risks ahead of their book-closing, though many
traders expect new investor money to underpin the market in
April.

“In a birds’ eye view, there are so many uncertainties.
Japan’s supply chain is disrupted and the economy is suffering
from supply shock. There’s no way out in Libya. Interest rates
will be under pressure,” said a trader at a Japanese bank.

June 10-year JGB futures (2JGBv1: Quote, Profile, Research) rose 0.14 point to 139.78.

The yield on the current 10-year JGBs fell 0.5 basis point
to 1.230 percent . It is down 4.0 basis points
since the devastating quake on March 11.

Although the yield had fallen as low as a two-month low of
1.145 percent earlier this month in panic buying following
accidents at a nuclear power plant in Fukushima, investors’
profit-taking pushed the yield higher.

Some analysts think investor profit-taking could cap the
market.

“There’s a chance investors may take profits at the start of
the new financial year,” said Katsutoshi Inadome, a fixed-income
strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Banks may need more funds for lending to support rebuilding
efforts,” he added.

Superlongs — maturities of more than 10 years — were under
pressure as they are particularly vulnerable to worries that the
cost of reconstruction and possible compensation for nuclear
radiation leaks could further worsen Japan’s already dire fiscal
position.

The 20-year JGB yield rose 1.0 basis point to 2.040 percent
while the 30-year bond yield rose 1.5 basis
points to 2.185 percent.

The yield curve steepened, with the spread between five- and
20-year yields rising to 157 basis points, near the three-month
peak of 157.5 basis points hit earlier in the month.

On the other hand, many analysts think short-term paper is
likely to be supported.

The two-year JGBs look cheap as they yielded
more than 10 basis points over the two-year overnight interest
rate swaps, said Makoto Noji, senior strategist at Nikko Cordial
Securities.

“I think this is an anomaly due to the fiscal-year
end. Investors who are conscious of risk return metrics and ROEs
do not want to hold short-term JGBs because their return is so
low. I expect the two-year yield could fall below 0.15 percent,”
he said.

Many investors expect the Bank of Japan to maintain its easy
policy and keep interest rates near zero in the foreseeable
future. Some market players think the BOJ could increase its
asset purchases to alleviate the burden from the natural
disaster and nuclear accident.

In the money market, overnight calls were traded at
0.06-0.07 percent.

The Bank of Japan’s 2 trillion yen fund injection for March
31-April 1 attracted bids of only 60.4 billion yen, suggesting
that most market players already have enough cash for the
financial year-end, when funding demand is very strong.

(Reporting by Hideyuki Sano; Editing by Chris Gallagher)

JGBs mostly higher; curve steepens as superlongs retreat