Long-dated JGBs fall on profit-taking; debt woes in focus

TOKYO: Long-dated Japanese government bond prices fell on Monday after investors trimmed positions to reduce duration risks in their portfolios due to concerns about the debt crises in Europe and the United States, steepening the yield curve.

Traders said Japanese life insurers and banks were seen taking profits on bonds with maturities of more than 10 years to prepare for a possible stock market selloff after Standard & Poor's downgraded the United States' credit rating and Europe's debt woes continue.

Amid thin trade as players took a wait-and-see stance in the morning, JGBs were facing selling pressure ahead of a 40-year auction on Tuesday and a five-year sale on Thursday, a trader at a US brokerage said.

"JGBs are likely to be supported by falls in share prices and the US and European debt problems, but demand weakens when the 10-year yield is below 1 percent," he said.

September 10-year JGB futures edged down 0.04 point to 142.29, off a nine-month high hit on Friday.

The benchmark 10-year JGB yield climbed 2 basis points to 1.020 percent, after hitting a nine-month low of 0.985 percent on Friday. The five-year yield was unchanged at 0.335 percent.

The yield curve steepened as the yield on the 20-year bonds rose more than those of shorter-dated maturities. The 20-year yield was up 3 basis points at 1.785 percent, after hitting a 10-month low of 1.710 percent on Friday.

Three-month euro-yen futures were up 0.5 basis point at 99.685, having briefly marked a five-month high of 99.695, supported by short-covering, traders said.

According to market participants, the repo rate slightly declined from last week and was stable around 0.095 percent, with no signs of disturbance from the downgrade of the US credit rating.

Copyright Reuters, 2011