JGBs up after tame data;curve steepens before auction

* JGBs gain in belated reaction to tame US employment data

* First chance for Tokyo to react to data after 3-day weekend

* Curve steepens as superlongs lag ahead of 30-year auction

* Little reaction to Japan’s decision to buy euro zone bonds

By Shinichi Saoshiro

TOKYO, Jan 11 (BestGrowthStock) – Japanese government bonds gained on
Tuesday in a belated reaction to weaker-than-expected U.S.
employment data released late last week, with the yield curve
steepening slightly as superlongs lagged ahead of an upcoming
30-year sale.

Japanese financial markets, shut on Monday for a national
holiday, were reacting for the first time to the closely watched
U.S. employment data released on Friday, which showed U.S.
employers added fewer jobs than anticipated in December.

The report came after JGBs were buffeted last week by
heightened expectations for Friday’s data following a U.S. ADP
Employer Services report that was much stronger than expected.

“Wariness towards the data was quite strong due to the ADP,
and the gains reflect an ebb in such concerns,” said Takafumi
Yamawaki, chief fixed-income strategist at JP Morgan Securities
in Tokyo.

“The data has calmed potential bond buyers and JGBs look to
be supported this month.”

March 10-year JGB futures (2JGBv1: ) were up 0.31 point at
140.02 after going as low as 139.53 late last week.

The 10-year yield (JP10YTN=JBTC: ) fell 1 basis point to 1.185
percent and the 30-year yield (JP30YTN=JBTC: ) dipped 0.5 basis
point to 2.085 percent, widening the 10-year/30-year yield spread
by 1 basis point to 90 basis points.

The 30-year yield climbed 10 basis points last week as
dealers and investors sold superlongs to make room for Thursday’s
30-year sale and a 20-year offering on Jan. 20.

The steadiness of the short-end could also contribute to the
steepening bias.

The short-end has been well anchored after the Bank of Japan
recently increased liquidity in the money market, pushing up the
current account balance to an average of about 20 trillion yen
($241 billion) in December, the highest since 2006.

The current account balance is the amount of funds parked by
banks at the central bank.

The BOJ eased monetary policy in early October but some had
said money market rates remained elevated due to an initially
tepid increase in the current account balance.

The ample liquidity the central bank has pumped into the
money market has caused undersubscriptions at many of its fund
supplying operations in recent weeks.

The two-year (JP2YTN=JBTC: ) was untraded. Last week it was
little changed from the previous week, yielding 0.175 percent.

JGBs showed little reaction to comments by Finance Minister
Yoshihiko Noda on Tuesday that Japan will purchase euro zone
bonds to help bolster confidence in the European Financial
Stability Facility (EFSF). [ID:nTKF107154]

It is difficult for the bond market to react when there is an
absence of clear motive behind the move, said a trader at a
foreign bank.

Noda suggested Japan would use its euro cash holdings to buy
the bonds.
($1=82.95 Yen)
(Editing by Joseph Radford)