Japanese government bonds up to record high on election prospects

Japanese government bonds were up yesterday, with 10-year futures up to record highs following media reports of the main opposition party gaining a likely majority in the upcoming election, increasing expectations of bolder monetary easing.

The market received another boost with the auction of 30-year JGBs which evinced strong demand. The uptick helped the longest maturities to put up a strong performance after weeks of underperformance as concerns grew over aggressive money printing leading to inflation at a future date.

Ten-year JGB futures were up 0.23 point in price to 145.22 , their largest gain in two and a half months, with the contract hitting an intraday record high of 145.24.

Trade volume were heavy, as 64,642 contracts changed hands, the second largest this year and over double the average daily turnover of around 26,800.

The rally was initially triggered by Japanese media polls pointing to a sweep by the conservative Liberal Democratic Party in the upcoming 16 December election. The party's leader, Shinzo Abe has made bolder easing by the Bank of Japan a major plank of his platform.

With the news, the five-year yield fell below its key resistance at 0.165 per cent to 0.155 per cent, a level last seen in June 2003, when it hit a record low of 0.145 per cent amid the country's banking crisis.