TOKYO: Japanese government bond futures on Tuesday bounced from a 2-1/2 month low as renewed worries about the euro zone's debt problems and the failure of trading firm MF Global Holding dented investor appetite for risk and increased the allure of safe-haven government bonds.
But gains were limited in comparison to a surge in US Treasuries on Monday as broker hedging and position squaring before a 2.2 trillion yen ($28 billion) 10-year JGB auction weighed, market players said.
December 10-year JGB futures rose 0.21 point to 142.27 after hitting their lowest since Aug. 12, at 141.98, on Monday.
The 10-year yield was down 2 basis points at 1.025 percent. The yield marked 1.045 percent the previous day, its highest since Sept. 5.
The Ministry of Finance reopened the 1.0 percent coupon No.318 10-year JGBs for the first time for the auction of the maturity on Tuesday. The results of the 2.2 trillion yen ($28 billion) offering will be released at 12:45 p.m.
Support is expected as the current 10-year yield recently hit a two-month high and on expectations that the Bank of Japan will maintain its monetary easing stance, but some investors may hold off on purchases as key events such as the Federal Reserve's monetary policy meeting and US economic data, including jobs, are due later this week.
Although the euro zone's bailout package announced last week and a string of reasonably strong US data had eased concerns about the global economy, market players remained on guard against potential pitfalls, with the safe-haven appeal of government bonds remaining largely intact.
"The Japanese economy is still in a recovery phase (after the March earthquake and tsunami) but with a slowing in the US and European economies, a global slowdown is unavoidable. Japanese companies will be affected by the floods in Thailand and curbs on power use ahead of winter will dent supplies," said Koji Ochiai, chief market economist at Mizuho Investors Securities, adding that the 10-year yield would likely dip below 1 percent again.
Risk assets such as stocks came under renewed pressure amid growing doubts about the effective implementation of a plan agreed just last week to contain Europe's debt crisis.
Greek Prime Minister George Papandreou has called an unexpected referendum on a new EU bailout deal for his debt-ridden country, while Italian bonds faced persistent selling pressure.
US Treasuries soared on Monday, as stock market losses bolstered the bid for safe-haven US government debt.
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