TOKYO: Japanese government bonds skidded on Thursday, tracking a drop in US debt and further pressured as Tokyo stocks rose, but dip buying emerged after 10-year cash bond yields touched a three-month high.
Ten-year JGB futures fell 0.42 point to 141.51 after dropping as low as 141.29, their lowest since July 2011, on stop-loss selling by hedge funds. The fall extended futures' largest drop in a year in the previous session.
The yield on the latest 10-year JGB was up 3 basis points at 1.035 percent, after rising to a three-month high of 1.050 percent.
"Buyers emerged when the benchmark yield touched 1.050, showing that even if Japanese yields continue to track US yields higher, the correlation will diverge somewhat due to supply and demand conditions, and expectations about the Bank of Japan's policies," said a fixed-income fund manager at a Japanese trust bank.
The BOJ is considered likely to eventually extend the maturity of bonds it buys under its asset purchase programme to three-year and five-year durations from its current two-year time frame.
The benchmark Nikkei stock average gained on Thursday, buoyed by a rise in the dollar to a fresh 11-month high of 84.18 yen and diminishing the appeal of safe-haven fixed income assets.
The 20-year yield rose 2.5 basis points to 1.800 percent as the finance ministry conducted a regular auction of 1.1 trillion yen ($13.13 billion) of 20-year notes.
Most market participants expect the 20-year sale, the last for that maturity before the end of Japan's fiscal year on March 31, to meet with healthy demand.
Weekly capital flow data released on Thursday showed Japanese investors bought a net 367.1 billion yen of foreign bonds in the week through March 10, following up their purchases of 276.4 billion yen the previous week and massive buying of 1.355 trillion yen the week before.
Copyright Reuters, 2012
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