TOKYO: Japanese government bond prices dipped on Thursday, reversing earlier gains, as Japanese banks took profits in the medium-term sector, with trade erratic just before the end of the Japanese financial year later this week.
The June JGB futures contract fell 0.09 points to 141.86 while the yield on current 10-year cash bonds stood flat at 1.000 percent after a brief foray below the 1 percent mark.
Many market players were expecting profit-taking to set in if the 10-year yield falls below the 1 percent mark, a level seen as a major psychological barrier. It is also a former major yield resistance level.
The 10-year yield stayed below 1 percent for about three months until mid-March but recent strength in Japanese shares led many market players to think any fall in the 10-year yield below 1 percent was likely to be unsustainable.
The Nikkei average fell 0.9 percent on Thursday but still held near one-year highs and above the 10,000 mark, a level few market players would have expected it to reach just over a few weeks ago.
"Given the strong performance of risk assets, it will be hard to buy bonds further from here," said Le Ngoc Nhan, fixed income strategist at Morgan Stanley.
"Bond yields are likely to edge up for now although we don't expect a sharp rise given the risk of slowdown in the global economy later this year," Nhan said.
The five-year yield rose 0.5 basis points to 0.325 percent with Japanese banks said to be taking profits in this maturity.
The two-year bond yield also rose to as much to 0.115 percent, the highest since the Bank of Japan's easing in mid-February, as the market looked for concession ahead of a 2.7 trillion yen two-year JGB auction later in the day.
Trade flows were limited with many Japanese players not wanting to change their books ahead of the end of the financial year on March 31.
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