JGBs slip on firm stock prices, diminishing BOJ rate cut expectations

TOKYO (Reuters) - Japanese government bond prices slipped on Friday, extending their retreat this week, as Japanese share prices held firm following a Brexit deal between the European Union and Britain, and on optimism about the technology sector.

The market is also scaling back expectations that the Bank of Japan will cut interest rates further at its policy meeting at the end of this month.

The BOJ maintained the size of its buying in superlong JGBs, buying 120 billion yen ($1.11 billion) of 10-25 year bonds and 30 billion yen of 25-40 year bonds.

However, the market was slightly surprised as the BOJ did not include the current 64th 30-year JGBs, which were issued just last week and among the most liquid, in its buying.

That helped lift the 30-year JGB yield 1.5 basis points to 0.400%, affecting other superlong maturities as well.

The 20-year JGB yield rose 1 basis point to 0.230%, while the 40-year JGB yield rose 0.5 basis point to 0.435%.

At the shorter end, the 10-year JGB yield rose 0.5 basis point to minus 0.155%. The benchmark 10-year JGB futures fell 0.04 point to 154.26, on course for its six consecutive day of losses.

The three-month overnight index swap rate has risen back to around minus 0.125% compared to a low of minus 0.145% earlier this month.

The OIS markets have now priced out a serious chance of an interest rate cut at the BOJ's policy announcement on Oct. 30, analysts said.

Earlier this month, markets had almost fully priced in a 10 basis point cut.

(Reporting by Tokyo Markets Team; Editing by Shounak Dasgupta)