SHANGHAI, Feb 23 (Reuters) - China's government bonds rose on Friday, as market participants bet on further monetary easing following the biggest ever reduction in the mortgage rate while risk appetite fell slightly as local shares snapped their winning streak.

The country slashed the benchmark mortgage rate by 25 basis points this week, the largest cut since the reference rate was introduced in 2019 and far more than analysts had expected. The deep cut prompted market expectations that more policy easing would come to shore up a recovery in the world's second-largest economy.

Thirty-year treasury futures for March delivery rose to their highest level since the contract was launched in 2023, while benchmark 30-year yields fell to 2.5720%, the lowest on record.

Meanwhile, the yield on the benchmark 10-year government bonds eased to 2.39%, the lowest since June 2002.

Yields have an inverse relation with bond prices - as prices increase, yields fall.

"Short-end rates will be lowered sooner or later, after the five-year loan prime rate (LPR) cut," said a trader at a fund.

In the derivatives market, one-year interest rate swaps , a gauge that measures investor expectations of future funding costs, fell to 1.86% on Friday, the lowest since August 2023, suggesting many investors are pricing in further monetary easing.

"Despite a robust rebound in the Chinese New Year holiday travelling and consumption, China is still facing growth headwinds from property downturn and the risk of soft household consumption recovery, as well as deflation pressure," said Wang Tao, Chief China Economist at UBS.

"We still expect the People's Bank of China (PBOC) to cut policy rates in the coming months to fight deflation pressure and support the economy, though its concerns over maintaining stability of yuan exchange rate and banks' net interest margins may limit the cut."

She added that the central bank could offer a deeper cut to her current expectation of a 10 to 20-basis point medium-term lending facility (MLF) rate cut and another 25-basis-point reserve requirement ratio (RRR) cut this year, if the property market sees no sign of stabilisation in coming months.

The latest data showed China's new home prices slowed their month-on-month declines in January with the biggest cities seeing some stabilisation, but the nationwide downward trend persisted despite Beijing's efforts to revive demand.

Separately, a correction in A-shares also lent support for the bond market, traders said, after Chinese stocks slipped on Friday, on course to snap an eight-session winning streak.

(Reporting by Shanghai Newsroom. Editing by Sam Holmes.)