TOKYO: Long-dated Japanese government prices inched higher on Friday, with the 30-year yield hitting a seven-month low, as pension funds looked to extend the duration of their portfolios.
Expectations that the Bank of Japan will adopt bold monetary easing also supported the market, although gains were capped after Tokyo's Nikkei share average reversed earlier losses and traded higher.
The 30-year yield slipped 4.5 basis points to 1.765 percent after dropping at one point to 1.750 percent, a seven-month low. The 30-year yield has shed 14.5 basis points this week, its biggest weekly decline since December 2008.
The 20-year yield eased 3 basis points to 1.575 percent, falling for an eight straight session and after touching a seven-month trough of 1.555 percent.
"It's more related to the extension trade by pension funds who need to extend the asset side duration by buying long-end of the curve to match the underlying index," said Naomi Muguruma, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Another factor pushing the yields down is expectations of aggressive easing by the new BOJ chief," she said.
Prime Minister Shinzo Abe on Thursday nominated Asian Development Bank President Haruhiko Kuroda to be BOJ governor after current chief Masaaki Shirakawa steps down on March 19, and tapped academic Kikuo Iwata and BOJ official Hiroshi Nakaso as deputy governors.
The 10-year yield inched down 0.5 basis point to 0.655 percent by mid-afternoon after falling to 0.640 percent, a fresh nearly 10-year low.
With the superlong sectors outperforming, the spread between 10- and 30-year bonds narrowed to 111 basis points to its lowest level since late September.
Ten-year JGB futures added 3 ticks to 144.05 after hitting a two-month peak of 145.21 to within striking distance of a record high of 145.26.
Muguruma said the 10-year yield was likely to trade between 0.600 and 0.700 percent in the near-term as investors were likely to want to see what policy the new BOJ chief would adopt in whipping deflation.
Jiji news reported on Thursday that Kuroda's confirmation hearing would be on March 4, with the two nominees for the deputy positions to appear before lawmakers the following day.
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