JGB yield curve flattens after report Japan likely to revise auction framework

By Junko Fujita

TOKYO, Feb 24 (Reuters) - Japanese government bond (JGB) yield curve flattened on Tuesday after news that Japan may revise the framework of the liquidity-enhancement auction, raising expectations of a rise in yields on maturities of around 10 years.

The 10-year JGB yield JP10YTN=JBTC was flat at 2.105%.

The 20-year JGB yield JP20YTN=JBTC fell 2.5 basis points (bps) to 2.885% and the 30-year yield JP30YTN=JBTC fell 2.5 bps to 2.875%.

The Ministry of Finance is considering narrowing the bucket of mid-term bond sales to "over five years to 11 years" from the current "over five years to 15.5 years," Reuters reported.

"With the potential change, there may be more supply of the bonds with maturities of around 7 to 10 years. That may push the yields of those bonds higher," said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

"And also, the yields on super-long dated bonds may fall," he said.

The current bucket of super-long dated bonds of "over 15.5 years to under 39 years" is also likely to be categorised as "over 11 years to under 39 years", according to the report.

The yields on two-year and five-year bonds JP2YTN=JBTC, JP5YTN=JBTC slipped 1 bp each.

Japan's bond yield curve steepened in January, with yields on super-long bonds rising to a record high as concerns about Japan's fiscal health grew.

Yields on those bonds fell after Prime Minister Sanae Takaichi's landslide election earlier in February, which gave investors confidence that her government will not adopt an overly loose fiscal policy, as some opposition parties had proposed.

Strong demand from foreign investors for JGBs has also become a support for bond prices. Foreigners were dominant buyers of JGBs across the curve in January, according to data from the Japan Securities Dealers Association.

Yields move inversely to bond prices.

($1 = 155.0900 yen)