TOKYO: Japanese government bond prices edged down on Tuesday and benchmark futures slipped below key support from the Ichimoku cloud bottom, while the 10-year cash bond yield rose to a six-week high above one percent.
JGBs tracked a retreat in US and German bond prices overnight on hopes that most euro zone countries are fending off threats of runaway rises in bond yields despite an impasse in Greece's debt restructuring plan.
Euro zone finance ministers on Monday rejected as insufficient an offer made by private bondholders to help restructure Greece's debt, sending negotiators back to the drawing board and raising the threat of a Greek default.
Still, with yields on Italian, Spanish and French bonds all steadily slipping in recent weeks, investors are coming to round to the view that a firewall will be created between Greece and the rest of the euro bloc, with the possible exception of Portugal, which has also asked for international help.
The benchmark 10-year JGB futures slipped 0.10 point to 142.14, falling as low as 142.10 at one point, their lowest level in six weeks.
On the daily Ichimoku chart, futures look increasingly vulnerable as they have fallen below cloud bottom, at 142,24. In another bearish signal, the chiko span looks set to slip below historical futures prices on Tuesday.
In the cash bond market, the 10-year bond yield rose to a six-week high of 1.005 percent. Market players say investors are likely to start bargain-hunting at 10-year yields above the one percent mark, but below 1.1 percent.
Domestic investors are sitting a big pile of cash at the moment, said Mari Iwashita, chief market economist at SMBC Nikko Securities, noting that the Bank of Japan's 200 billion yen discount bill buying operation last Friday failed to attract enough bids.
"Investors are now keeping their money in short-term bills. There are many investors who want to buy bonds. But they also want to buy at higher yields so they are now in a bit of bind," Iwashita said.
As the benchmark 10-year yield has been stuck around one percent since August, the current 10-year yield is essentially little different from the past several months and therefore not particularly attractive to many investors, Iwashita said.
Still market players expect buying will likely emerge after many investors missed the opportunity to buy near 1.1 percent.
Indeed, Japanese regional banks bought the longer end of the yield curve Tuesday morning, market players said. The 20-year bond yield stood flat at 1.770 percent.
The 30-year yield was flat at 1.935 percent after hitting a six-week high of 1.945 percent earlier.
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