By Kevin Buckland TOKYO, Oct 14 (Reuters) - Investors bought short-dated Japanese government bonds and sold longer-dated securities on Tuesday as markets reopened after a long weekend and digested developments in the country's prime ministerial race. The 30-year JGB yield advanced 4.5 basis points to 3.23%, climbing for a third consecutive session. The 20-year yield rose 2 bps to 2.725%, 1.5 bps below last week's 26-year high. Bond yields rise when prices fall. Investors face the additional risk from an auction of 20-year bonds on Wednesday, following a soft sale of the 30-year paper a week ago. Long-dated bond yields had surged after fiscal dove Sanae Takaichi won leadership of the ruling Liberal Democratic Party earlier this month, setting her up to be prime minister. However, with coalition partner Komeito soon withdrawing support for the LDP over policy frictions with Takaichi, it opened a small possibility for Yuichiro Tamaki, leader of the opposition Democratic Party of the People, to be elected prime minister by parliament. Local media point to October 20 or 21 as likely dates for the vote. Based on current inter-party dynamics, "it is unlikely that a government formed solely by forces favouring reflationist policies would come to power," and as such, "it is unlikely that Japan's fiscal credibility will be significantly shaken," Noriatsu Tanji, chief bond strategist at Mizuho Securities, wrote in a client note. Meanwhile, the 10-year JGB yield eased 2 bps to 1.67%, dropping from a 17-year high of 1.7% from Friday. The five-year yield fell 2.5 bps to 1.2%, retreating from its own 17-year peak of 1.24%. The two-year yield, which is most sensitive to monetary policy expectations, dropped 1.5 bps to 0.905%. Takaichi was seen as likely to delay the Bank of Japan from resuming interest rate hikes, knocking shorter-dated yields back from multi-year peaks reached at the start of this month. Market-implied odds for a hike at the end of this month stand at 20% currently, rising to 37% by year-end, per LSEG data. (Reporting by Kevin Buckland; Editing by Harikrishnan Nair) (The article has been published through a syndicated feed. Except for the headline, the content has been published verbatim. Liability lies with original publisher.)
