Japanese government bonds rise on solid 30-year auction as snap election looms

By Kevin Buckland

TOKYO, Feb 5 (Reuters) - Japanese government bond futures rose and cash bond yields fell on Thursday following solid demand at a closely watched auction of 30-year debt, even as a crucial election loomed on Sunday that would shape the government's big fiscal stimulus plans.

Benchmark 10-year JGB futures 2JGBv1 added 0.11 yen to 131.68 by 0350 GMT, about 15 minutes after the auction results were announced.

The 10-year cash JGB yield JP10YTN=JBTC fell 1 basis point (bp) to 2.235% after closing the morning session flat. Bond yields rise when prices fall.

Other tenors had yet to change hands in the afternoon session, including the 30-year security.

Mizuho Securities strategists said in a note ahead of the auction that "significantly" higher yields compared to the previous auction a month earlier would likely attract buyers.

The 30-year JGB yield JP30YTN=JBTC was at 3.62% at the end of the morning session. At the previous auction, they were closer to 3.5%.

So-called super-long bonds have been particularly sensitive to a perceived loosening of fiscal restraint by Prime Minister Sanae Takaichi, an acolyte of former premier Shinzo Abe's "Abenomics" policies, with Japan already the developed world's most indebted nation.

The 30-year yield shot up to an all-time peak of 3.88% on January 20 in a bond rout triggered by Takaichi's pledge to waive the sales tax on food for two years as she called for the snap election.

Takaichi's Liberal Democratic Party could capture as many as 300 seats in the 465-seat lower house, recent newspaper polls showed.

"With uncertainty regarding fiscal policy expected to remain until specific policy details are revealed well after the election result is known, a sharp decline in interest rates is unlikely in the near term," the Mizuho Securities analysts said.

At the end of the morning session, the 20-year JGB yield JP20YTN=JBTC was 0.5 bp lower at 3.175%, the five-year yield JP5YTN=JBTC rose 0.5 bp to 1.68%, and the two-year yield JP2YTN=JBTC added 0.5 bp 1.275%.