TOKYO: Japanese government bonds fell on Monday after a better-than-expected US jobs report lowered expectations of further stimulus by the Federal Reserve and increased risk appetite.
But bonds were off their session lows by midday and some said the brighter economic outlook did not alter the big picture of expectations for interest rate to stay low.
"Despite the evidence for economic improvement, as long as the FRB sticks to its present interest rate policy not much is different, and that is also the case with the Bank of Japan and JGBs," said Junko Nishioka, chief Japan economist at RBS Securities Japan.
The US Labor Department said the economy created jobs at its fastest pace in nine months in January, driving the unemployment rate to 8.3 percent, near a three-year low.
The yield on the 10-year cash JGBs was up 1.5 points at 0.960 percent after earlier rising two basis points, moving away from a 14-month low of 0.935 percent hit last month. Ten-year JGB futures were down 0.14 point at 142.56 after earlier dropping as low as 142.50.
The five-year yield was up half a basis point at 0.330 percent. The 20-year yield was also up half a basis point at 1.715 percent, after having risen as high as 1.720 percent.
The 30-year bond yield rose half a basis point to 1.890 percent, moving further away from a four-month low of 1.880 percent hit last week.
Sentiment in the Japanese government bond market deteriorated sharply after the strong US jobs data prompted speculation the Fed might raise interest rates sooner than had been expected, according to the results of a Reuters weekly survey.
The poll's JGB bull-bear diffusion index, calculated by subtracting the number of bearish market players from those that are bullish, marked its lowest reading since it began in July. It fell to minus 40 from plus 7 in the last survey.
"We expect a moderate rise in bond yields as risk appetite is coming back and global share prices are testing new highs," a fund manager at an asset management firm said in the survey.
Seasonal factors could also affect the supply-demand balance for cash bonds ahead of the end of Japan's fiscal year on March 31, strategists say.
The Ministry of Finance's offer last Thursday of 2.2 trillion yen ($29 billion) in 10-year JGBs drew firm demand from investors, including big Japanese banks, which showed investors' appetite for debt remains healthy.
Strategists at Barclays cited a seasonal tendency in February for investors to increase their bond balances toward the end of the fiscal year. But from the second half of the month, the curve tends to come under flattening pressure.
Strong auction results since late last month "gives the impression that some of these seasonal moves were frontloaded", the Barclays analysts said.
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