TOKYO: Japanese government bond prices gained on Thursday, as investors piled back into the debt market after another big fall in Tokyo stocks and a relatively strong auction of two-year JGBs.
The two-year bond yield hit a 1 1/2-year high on market positioning ahead of an auction of 2.9 trillion yen ($28.6 billion) two-year JGBs, though the yield fell back after auction results turned out to be strong.
"There's strong potential demand in the market. There are many investors who want to buy when the market calms down. You don't see the much-hyped portfolio adjustment (from bonds to stocks) at all," said Katsutoshi Inadome, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.
The yield on the benchmark 10-year JGBs fell 5.0 basis points to 0.890 percent, distancing itself further from a 13-month high of one percent hit a week ago.
Japanese shares fell 5.2 percent on Thursday, extending losses from a 5 1/2-year peak hit a week ago, hit by a rebounding yen and worries the US stimulus could be rolled back this year.
The Nikkei share average, which had risen a whopping 53 percent at one point from the beginning of the year, started falling exactly on the day when the 10-year yield hit the symbolic one-percent peak last Thursday.
"Stocks can rise and the yen can fall only when bond yields are kept low. Financial markets are now looking for levels to settle down, with markets interacting with each other," said Akito Fukunaga, chief rates strategist at RBS Securities.
JGBs also had an additional lift from US Treasuries, whose yields fell sharply from highs hit in Wednesday's Asian trade, helped by solid demand at a five-year notes sale.
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