By Rocky Swift TOKYO, Oct 15 (Reuters) – Longer-term Japanese government bonds (JGBs) rallied on Wednesday as investors pared back expectations of stimulus and after an auction of 20-year debt went smoothly. The JGB market has been whipsawed by expectations about spending and debt management since fiscally hawkish Prime Minister Shigeru Ishiba announced his resignation last month. The 20-year JGB yield fell 2.5 basis points (bps) to 2.690%, while the 30-year yield sank 5 bps to 3.175%. The benchmark 10-year yield slid 1 bp to 1.650%. Yields move inversely to bond prices. Longer-dated bonds fell earlier this month, sending yields sharply higher, after fiscal dove Sanae Takaichi won a runoff vote to head the ruling Liberal Democratic Party (LDP). A parliamentary vote to confirm her as the next prime minister had been expected as soon as this week. But that was thrown into doubt on Friday after political party Komeito exited a coalition with the LDP. "It is important to note that ultra-long-term interest rates had already risen substantially, largely reflecting fiscal expansion risks," Mizuho Securities chief bond strategist Noriatsu Tanji said in a note. "While Komeito's withdrawal from the coalition certainly increased uncertainty over the political situation and fiscal policy, the risk balance appears to have shifted slightly towards a lower possibility of substantial expansion in spending." A Ministry of Finance sale of 20-year JGBs received bids worth 3.56 times the amount sold, lower than the 4 level seen in the prior sale but still above average over the past year. The 0.13 point tail of the auction, the gap between the lowest and average price, matched the level in August that was the lowest since January, another sign of resilient demand. Takaichi is making arrangements to hold meetings with three major opposition parties on Wednesday, the Jiji news agency reported. Kyodo reported that a parliamentary committee could not agree on holding a vote on October 21 to select the next prime minister. The two-year yield rose 1 bp to 0.9%. The five-year yield rose 0.5 bp to 1.190%. (Reporting by Rocky Swift in Tokyo; Editing by Subhranshu Sahu)
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