Short-term JGB yields dip as weak data tempers rate hike bets

By Rocky Swift

TOKYO, Feb 16 (Reuters) - Short-term Japanese government bond (JGBs) yields edged lower on Monday as weaker-than-expected economic data caused traders to ?pare bets for an early rate hike by the ?central bank.

The two-year yield, which is most sensitive to Bank of Japan (BOJ) policy rates, fell 1.5 basis points (bps) ?to 1.265%. The five-year yield fell 1.5 bps to 1.665%. Bond yields move inversely to ?prices.

Swaps markets trimmed bets for a BOJ interest rate ?hike in April after ?data showed Japan's gross domestic product edged up an annualised 0.2% in the October-December quarter, short of the median ?estimate for a 1.6% gain.

Later in the ?day, BOJ Governor Kazuo Ueda will meet with Prime Minister Sanae Takaichi for their first bilateral meeting since the ruling party's landslide election ?victory earlier this month.

"We expect the government ?to leave ?monetary policy decisions largely up to the BOJ, but will pay close attention to communications from both the government and the BOJ following the Takaichi-Ueda meeting," Naohiko ?Baba, chief Japan economist at Barclays in Tokyo, wrote in a note.

Barclays ?still expects the BOJ to raise rates at its April meeting, he added.

The benchmark 10-year yield was flat at 2.210% after a three-day drop.

The 20-year yield climbed 3 bps to 3.075%. The 30-year yield added 4.5 bps to 3.075%, while the yield on ?the 40-year ?JGB rose 7 bps to 3.725%.

Long-term JGB yields surged to ?record highs last month on concerns about the potential scale of stimulus from Prime Minister ?Takaichi, a fiscal dove.

But a measure of calm has returned to the market following her party's sweeping election victory on expectations that the mandate will give her the leeway to keep to her pledge of "responsible" stimulus.

"It seems like the government of Japan is least cognizant of markets and what their impact might be," said Tom Garretson, senior portfolio strategist at RBC ?Wealth Management.

"If they don't push too far on fiscal measures and eroding the balance sheet further, it looks like there's at least a balance between what the markets are ?willing to tolerate and the goals ?of the administration." (Reporting by Rocky Swift in Tokyo; Editing ?by Sumana Nandy and Thomas Derpinghaus)