JGB futures off 7-month high but losses limited ahead of Greek vote

TOKYO: Japanese government bonds dipped on Tuesday, weighed down by profit-taking as players took their cue from a slip in US Treasuries, but losses were limited as investors remained wary of shifting from bonds to riskier assets ahead of votes in the Greek parliament on an austerity package.

US government bond prices fell on Monday as investors returned to riskier assets amid expectations the Greek parliament would pass an austerity plan that would allow Greece to roll over its debt.

September 10-year JGB futures stood at 141.47, retreating from a seven-month high of 141.60 hit on Monday but staying above a five-day moving average that is hovering around 141.34, which has been a support as many investors are still unconvinced the worst is over in the euro zone's debt crisis.

"We can't really say Greece can avoid defaulting on its debt yet, and JGBs are supported by safe-haven demand on dips," said Shinji Nomura, chief fixed-income strategist at SMBC Nikko Securities.

The benchmark 10-year yield climbed 0.5 basis point to 1.100 percent, having fallen to a seven-month low of 1.095 percent the previous day. Traders said Japanese investors such as regional banks were likely taking profits.

The five-year yield rose 1 basis point to 0.395 percent while the 20-year yield was unchanged at 1.875 percent.

Players will likely shift their focus to Japanese economic indicators later this week, such as industrial production on Wednesday, to gauge how fast the economy will recover from the March earthquake and tsunami.

Analysts said the market has already factored in likely increases in industrial production for May and June. But they said JGBs could be weighed down if Wednesday's data also shows that output is forecast to rise in July, because that could spur talk of a V-shaped recovery.

A fund manager at a Japanese asset management firm said there is a chance of a rise in yields ahead of a 10-year bond auction next Tuesday if economic data shows a stronger-than-expected recovery, but cash-rich Japanese banks are likely to keep showing an appetite to buy JGBs on dips, and any yield rise is expected be subdued.

Japan's political stalemate and the risks of a slowing in efforts to recover from the March disaster and the radiation crisis could also delay steps to tackle structural problems including massive public debt, and make it hard for players to judge the timing and size of additional bond issuance.

Copyright Reuters, 2011