Japanese government bond futures gained for the first time in three days on Wednesday on relief after the benchmark US Treasury yield pulled back from an 18-month high. But a wait-and-see mood prevailed in the debt market ahead of a Bank of Japan monetary policy decision later in the day.
The yield curve steepened as short- to mid-term JGBs met with continued interest from domestic banks allocating funds for the start of Japan's fiscal year on April 1, while superlongs sagged after a flurry of buying earlier in the week tapered off.
"Buying interest from investors has been strong so far into the new fiscal year (which started in April), especially on price dips," said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities. June 10-year futures rose 0.02 point to 138.25. with some short positions covered after two consecutive days of losses.
The Japanese central bank is expected to stand pat on policy at the end of a two-day meeting on Wednesday, having just expanded its cheap funds scheme last month. Focus is on whether BOJ board will debate raising its assessment of the economy amid recent signs of a continuing recovery.
Such a revision might further reduce government pressure on the BOJ to take more action immediately, though persisting deflation could change that later in the year. The two-year yield declined 0.5 basis point to 0.155 percent. The five-year yield dipped 1 basis point to 0.535 percent and the 10-year yield was flat at 1.395 percent.
The 20-year yield edged up 0.5 basis point to 2.140 percent after hitting a 2-1/2 month low of 2.110 percent at the start of the week. The five-year/20-year yield spread widened slightly to 160.5 basis points, pulling back from a four-month low of 157.5 basis points struck earlier in the week. The spread had hit the four-month low as the main buyers of superlongs, which include pension funds and life insurers, steadily bought 20- and 30-year paper after the start of the new fiscal year.
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