TOKYO: The yield on benchmark 10-year Japanese government bonds fell below 1 percent on Wednesday after Greece's surprise call for a referendum rekindled fears about the viability of a European debt deal reached just last week.
Market participants said buying of cash bonds by investors such as Japanese banks and life insurers lead gains for JGBs. The yield curve bull-flattened as the decline in long-dated yields outpaced those of shorter and medium maturities. The five-/30-year yield spread shrank to 158.5 basis points from 160 points on Tuesday, its tightest spread in about two weeks.
The move reflects plans by Japan insurers to shift funds to domestic bonds and cut foreign debt investment.
The 10-year yield fell 2.5 basis points to 0.995 percent, its lowest level in four days.
December 10-yr JGB futures rose as high as 142.62, up 0.31 point, marking its highest level in four days and approaching the upper end of the Ichimoku cloud at 142.65 on Wednesday.
But players were cautious about chasing prices higher ahead of a two-day Federal Reserve meeting on monetary policy ending later in the day and US economic data, including on jobs data, due later this week. The Japanese market will be closed on Thursday due to a national holiday.
"People may want to be neutrally positioned ahead of events which will be happening when Japan is on holiday," said Katsutoshi Inadome, fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.
Market participants say JGB yields are already very low and have limited room to fall, and are mindful that a fall in the 10-year yield below 0.82 percent last year was quickly reversed.
The Greek government faced possible collapse on Tuesday as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation's euro membership into jeopardy with a shock call for a referendum on the deal.
The chairman of euro zone finance ministers, Jean-Claude Juncker, said Greece could go bankrupt if voters rejected the bailout package.
The Nikkei share average fell 1.9 percent on Wednesday.
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