JGBs mostly higher on bargain hunting after plunge

* JGBs plunge early after further fall in Treasuries

* But bargain hunting helps JGBs pare most losses

* Poll-JGB issuance to mkt seen at 147 trln yen in 2011/12

By Shinichi Saoshiro

TOKYO, Dec 15 (BestGrowthStock) – Japanese government bonds were
mostly higher on Wednesday as bargain hunters stepped in
following an earlier plunge induced by Treasuries, in a sign the
recent retreat has gone onto a lower boil.

Steady bargain hunting emerged in the underlying cash market,
helping March 10-year futures retrace losses after they fell
nearly a full point in early trade in a knee-jerk reaction to a
sharp drop in Treasuries the previous day.

Such buying was seen across the yield curve, with banks of
various sizes purchasing midterm debt, publicly-affiliated
institutions picking up long-end JGBs and life insurers buying
superlongs, traders said.

The yield curve flattened as superlongs gained and
outperformed other maturities.

“Sellers had the upper hand in early trade on offers by
financial institutions, part of their systematic unloading to
reduce risk and cut losses,” said a fund manager at a domestic
asset management firm.

“But such selling petered out, opening the door for bargain
hunting, particularly in the superlong sector.”

Treasuries have been the JGB market’s main driver this week,
in part because their recent sharp plunge has forced domestic
investors such as banks to sell JGBs to cover losses in their
foreign bond holdings.

The five-year yield (JP5YTN=JBTC: ) was down 1 basis point to
0.530 percent after going as high as 0.600 percent.

The benchmark 10-year yield (JP10YTN=JBTC: ) was up 1 basis
point to 1.255 percent, pulling back from a seven-month peak of
1.295 percent.

The 30-year yield (JP30YTN=JBTC: ) dropped 1.5 basis points to
2.170 percent.

December 10-year futures (2JGBv1: ) ended the day down 0.20
point at 138.95 after touching an eight-month low of 138.16 on
selling by speculators including commodity trading advisors.

A technical barrier at around 138.18 was briefly breached but
held intact. The level is the half-way point between a high
marked in October of 144.34 and a low hit in June 2008 of 132.05,
and is also the starting point of a medium-term uptrend that
lasted until earlier this month.

Makoto Noji, a strategist at Mizuho Research & Consulting,
said support appears firm around 138.18 from a technical point of
view, but that a convincing break below that barrier would send a
clear bearish signal.

RECORD AMOUNT

Japan is expected to issue 147 trillion yen ($1.75 trillion)
in government bonds to the market next fiscal year, a Reuters
poll showed, another record amount for the most indebted
industrialised nation. [ID:nTKG006995]

But the poll also showed that Japan is expected to keep new
JGB issuance steady at 44 trillion yen in the year from April,
matching the government’s self-imposed cap as it grapples with
debt about twice the size of the $5 trillion economy.

The strategists polled expect the 30-year and 40-year
maturities to bear much of the supply increase next fiscal year,
while few expect an increase for the benchmark 10 years.

“Supply has not been a major market theme this year, but
participants could take notice if Japan can’t keep new issuance
unchanged at 44 trillion yen,” said Katsutoshi Inadome, a
fixed-income strategist at Mitsubishi UFJ Morgan Stanley
Securities.

The government is aiming to decide this week on a budget
outline for fiscal 2011/12.
(Editing by Joseph Radford)

JGBs mostly higher on bargain hunting after plunge