JGB futures edge down but easing talk supports short-end

TOKYO: Ten-year Japanese government bond futures were off lows as initial optimism over Greece's debt deal turned to caution on Friday, while the possibility of more easing ahead supported cash bonds at the shorter-end.

Greek leaders agreed on a package of reforms hours before the country's financial backers were to meet in Brussels on Thursday.

The agreement on the austerity plan paved the way for the country to secure bailout funds and avoid a chaotic default, and led to an initial increase in risk appetite which weighed on U.S Treasury prices.

Futures pared losses as equities markets gave up earlier gains, however, with 10-yr JGB futures sliding 0.01 point to 142.29, after falling as low as 142.19 earlier. Support was seen at the Jan. 24 low of 142.10 and the 200-day moving average at 141.89.

Shares pulled back on Friday as investors kept a cautious view over Greece's debt restructuring prospects, even after the deal in Athens.

"While the risk of an imminent default by Greece has receded, it's not the end of the story. There is still risk of cases similar to Greece emerging in the euro zone," said Hiroshi Maeba, managing director of foreign exchange trading at Nomura Securities in Tokyo.

Cash bonds did not follow futures down, supported by speculation about whether the Bank of Japan might weigh further easing at its meeting next week, after the US Federal Reserve last month extended its pledge to maintain short-term interest rates at low levels and offer additional stimulus as needed.

The 10-year yield was flat at 0.985 pct, after opening slightly higher at 0.990 percent.

"The Japanese bond market has moved beyond short-term reaction to developments in Greece and is looking ahead to the possibility of the Fed launching QE3," or a third round of so-called quantitative easing with more asset purchases, said Ayako Sera, market economist at Sumitomo Trust and Banking.

The BOJ will meet on Feb. 13-14, and is expected to hold policy steady and maintain its overall economic outlook, but some say it is possible the bank could expand its 55 trillion yen ($715 billion) asset buying programme mostly by buying more JGBs.

Healthy demand at Thursday's 40-year auction failed to provide any follow-through momentum for long-term bonds, with the 30-yr yield rising one basis point to 1.935 percent , moving further away from a four-month low of 1.880 percent touched last week.