Benchmark JGB yields edge lower as government signals issuance restraint

By Rocky Swift

TOKYO, Dec 26 (Reuters) - Benchmark Japanese government bonds (JGBs) gained slightly on Friday as expectations for restrained debt issuance helped yields retreat from a 26-year peak.

The 10-year JGB yield JP10YTN=JBTC fell 1 basis point (bp) to 2.035%, down from the 2.1% level reached on Monday that was the highest since 1999. Futures on the 10-year JGB 2JGBv1 rose 0.03 yen to 132.71.

Long-term JGB yields have climbed sharply since early November, hitting successive record highs, on concerns over the size of Prime Minister Sanae Takaichi's debt-funded stimulus.

Short-term yields have faced upward pressure as the Bank of Japan signalled its readiness to continue raising interest rates.

Takaichi on Thursday sought to ease market concerns over her expansionary fiscal policy, saying the government's draft budget maintains discipline by limiting reliance on debt.

The government will likely reduce new issuance of super-long securities next fiscal year, Reuters reported on Wednesday.

Such a reduction "should go some way towards alleviating upward pressure on super-long JGB yields from a supply/demand perspective," Yusuke Matsuo, senior market economist at Mizuho Securities, said in a note.

Meanwhile, data on Friday showed core consumer prices in Japan's capital rose 2.3% in December from a year earlier, staying above the central bank's 2% target.

The BOJ raised interest rates last week to a 30-year high of 0.75%, and Governor Kazuo Ueda said on Thursday the nation's underlying inflation is accelerating gradually, reiterating the central bank's readiness to continue raising interest rates.

Most JGB yields were unchanged in early trading. Super-long-term bonds rallied in the prior session, with the 30-year yield JP30YTN=JBTC falling to as low as 3.38% from a record high 3.45% seen on Wednesday.