Benchmark JGB yields rise on issuance shuffle; 2-year notes stable before auction

By Rocky Swift and Junko Fujita

TOKYO, Nov 28 (Reuters) - Benchmark Japanese bonds slid on Friday on expectations the government will sell more of the securities as it seeks to fund massive new spending.

The 10-year Japanese government bond (JGB) yield JP10YTN=JBTC rose 2 basis points (bps) to 1.815%, poised to rise 16 bps in November in what would be its steepest monthly climb in six. Shorter-term yields held near 17-year highs before an auction of two-year notes.

JGB yields have been surging of late on concerns over the size of Prime Minister Sanae Takaichi's stimulus plan and how much may be funded by debt.

At a semi-regular meeting with Ministry of Finance officials on Thursday, primary dealers of JGBs said they saw scope to increase the issuance of two-, five- and 10-year securities, and would like to see less issuance of super-long-dated debt.

"Rises on those (long-term) yields were capped because of the outcome of the primary dealers' meeting," said Takahiro Otsuka, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The sale of about 2.7 trillion yen ($17.26 billion) in two-year debt later in the session will likely see firm demand due to the recent run-up in yields, he said.

The government plans to expand JGB sales in the current fiscal year by around 7 trillion yen from the currently planned 171.8 trillion yen, Reuters reported on Thursday, citing two officials familiar with the matter.

The plan would increase monthly auctions of two- and five-year debt with no changes in sales of bonds dated 10 years or longer, the sources said.

The 20-year yield JP20YTN=JBTC rose 1 bp to 2.825%. The 30-year yield JP30YTN=JBTC was flat at 3.33%.

The two-year JGB yield JP2YTN=JBTC held at 0.965%, while the five-year yield JP5YTN=JBTC was stable at 1.315%. Both touched their highest levels since June 2008 earlier this week.

($1 = 156.3900 yen)