Japanese government bond futures slip

Japanese government bond futures slipped on Friday after the European Central Bank took steps to contain the eurozone debt crisis by pumping cash into the banking system, reducing safe-haven bids for bonds and lifting share prices. Investors have been looking to purchase JGBs on dips to meet their investment plans for the second half of fiscal year, but they largely stuck to the sidelines on Friday before a key US jobs report due later in the day, market participants said.
"Investors had been eager to buy until yesterday, especially those who couldn't buy the new 10-year bonds at the auction on Tuesday, but they have become very quiet," said a trader at an European brokerage firm. The 10-year yield climbed 1.5 basis points to 0.990 percent, after slipping on Thursday to match a 10-month low of 0.965 percent marked in September.
Superlongs, 20- and 30-year bonds, performed better than other maturities after the yield curve steepened earlier this week. The 20-year yield was at 1.700 percent and the 30-year yield at 1.900 percent, both declining 1 basis point. December 10-year JGB futures were down 0.09 point at 142.64, after briefly breaking below support at the Ichimoku kijun-sen at 142.56.
New claims for US unemployment benefits rose slightly less than expected last week, hinting at an improved labour market a day before the closely watched non-farm payrolls report due at 1230 GMT. Economists polled by Reuters expect employers added 60,000 jobs in September after no net hirings in August. But JGB losses are expected to be limited with the 10-year yield seen staying near 1 percent as Japanese investors with ample cash are eager to buy on dips.
"The recent unwinding of 'risk-off' positions didn't have much influence on JGBs. If the US jobs report shows strong figures, we may see more unwinding, but a sharp correction in JGB prices is unlikely as investors' concerns are centred on the eurozone debt crisis, which will not be resolved easily," said a fund manager at a Japanese asset management firm.
In addition, concerns about additional debt sales to finance Japan's already drafted extra budget have somewhat receded, as many now expect them to be smaller than initially thought. Many players, therefore, see room for yields on long-dated JGBs to fall as JGBs have underperformed US Treasuries, which have just marked a robust third quarter. Prices of long-term US debt have shown their best performance since the last three months of 2008. The same maturities in JGBs gained for the second straight quarter in July-September, but advances were subdued compared with the previous quarter.
Investors, however, have been cautious about buying at 10-year yields below 1 percent as historically falls below that level have not been sustainable and are followed by selloffs, such as in November last year. The ECB, wary of the region's fiscal woes spiralling into a global crisis, said it will revive 12-month loan operations and purchases of covered bonds, though it kept key interest rates unchanged at 1.50 percent. The Bank of Japan kept monetary policy unchanged as widely expected on Friday, holding off on tapping its depleted policy arsenal for now although fears of a global recession and Europe's debt crisis are clouding the outlook for the fragile economy.