JGBs dip as investors square positions but big weekly gains likely

TOKYO: Japanese government bonds dipped on Friday as investors squared positions following a sharp rally the day before, though the market was still on track for chunky weekly gains after Europe's festering debt crisis and jitters on the US economy prompted investors to look for safe havens.

"Investors are trimming their positions after yesterday's rally and ahead of the long weekend," said RuiXue Xu, a fixed income strategist at RBS Securities. Japanese markets will be closed on Monday for a national holiday.

"There isn't much in terms of data or events today and players are squaring positions for a shortened week next week which includes a 20-year auction."

September 10-year JGB futures dipped 0.05 point to 141.70 after hitting an eight-month high of 141.77 the previous day. Futures were still on track to end the week more than a full point higher, which would mark their largest weekly climb since November 2009.

JGBs were boosted this week by the continuing debt crisis in Europe -- Moody's cut Ireland's credit rating to junk status and fears arose that the debt malaise could spread to Italy -- and by Federal Reserve Chairman Ben Bernanke's suggestion that the US central bank could ease monetary policy further if economic recovery stumbled.

The benchmark 10-year yield climbed 1.5 basis points to 1.085 percent but remained within striking distance of 1.070 percent, an eight-month low hit the previous day.

Japan's Ministry of Finance will offer 20-year JGBs next week, with some market players worried that yields may have dropped too low to attract solid investor demand.

An auction of five-year JGBs on Thursday met decent appetite from cash-rich domestic investors such as banks concerned that this week's surge in the yen could hurt the Japanese economy.

Copyright Reuters, 2011