TOKYO: Japanese government bond futures rose to a nine-month high on Tuesday as investors rushed for the safety of bonds from riskier assets as share prices tumbled worldwide in the wake of a US debt downgrade.
A massive fall in US shares on Monday was fanning concerns about a deepening in the global debt crisis, and some market players were starting to worry that recession could not be ruled out.
The Nikkei average tumbled more than 4 percent in heavy volume on Tuesday, posting its biggest one-day fall since the March earthquake.
"JGBs are directly reacting to the sharp selloff in stock markets as people were not expecting them to go down that much," said Nobuto Yamazaki, executive fund manager at DIAM Asset Management.
* Players expected a limited impact on the overall JGB market from a 400 billion yen ($5 billion) 40-year JGB auction on Tuesday as the issue amount is relatively small. The Ministry of Finance reopened its No.4 40-year JGBs first sold in May, with a 2.2 percent coupon.
"If the auction draws decent demand, it may have a positive effect on the overall JGB market, but today's market is totally focused on the riskoff mood and people are concentrating on how long shares will keep falling," Yamazaki said.
The benchmark 10-year yield was down 0.5 basis points at 1.000 percent, having hit a fresh nine-month low of 0.975 percent. The five-year yield also fell to a nine-month low, at 0.315 percent, down 1.5 basis points.
The yield curve bull flattened as superlongs such as 20 and 30 years outperformed at one point when the Nikkei extended losses, but traders noted profit-taking tended to emerge at lower yields from investors, possibly to cover losses expected from plunging shares.
Superlongs lost ground at the end of the morning session, tilting the curve in a steepening direction.
Copyright Reuters, 2011
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