Japanese government bonds dipped on Friday as investors squared positions following a sharp rally the day before, though the market still posted chunky weekly gains after Europe's festering debt crisis and jitters on the US economy prompted investors to look for safe havens.
"Investors are trimming their positions after yesterday's rally and ahead of the long weekend," said RuiXue Xu, a fixed income strategist at RBS Securities. Japanese markets will be closed on Monday for a national holiday. "There isn't much in terms of data or events today and players are squaring positions for a shortened week next week which includes a 20-year auction."
A wait-and-see mood ahead of the results later in the day of stress tests at 90 banks in Europe confined bond prices to a narrow range. Traders said favourable test results would hurt government debt while a poor outcome would likely buoy bonds. September 10-year JGB futures dipped 0.13 point to 141.62 after hitting an eight-month high of 141.77 the previous day. Futures still ended the week roughly a full point higher, however, for their largest weekly climb since November 2009.
JGBs were boosted this week by the continuing debt crisis in Europe - Moody's cut Ireland's credit rating to junk status and fears arose that the debt malaise could spread to Italy - and by Federal Reserve Chairman Ben Bernanke's suggestion that the US central bank could ease monetary policy further if economic recovery stumbled.
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