TOKYO: Japanese government bond futures inched up on Friday, supported by bargain hunting around the key 142 line, but superlongs underperformed the market on expectations that increased debt sales to finance post-quake rebuilding will push up JGB yields.
September 10-year JGB futures edged up 0.08 point to 142.20 by the midday break. The lead contract earlier fell as low as 141.93, which is just above the 20-day moving average of 141.90. Market participants say this level has been supporting futures since mid-July.
Earlier this week, the September contract hit a nine-month high of 142.64.
The benchmark 10-year JGB yield was up 0.5 basis point at 1.040 percent , off a two-week high of 1.050 percent hit in early trade. It marked a nine-month low of 0.975 percent earlier this week, supported by safe-haven demand amid tumbling global equities following a downgrade of the U.S debt rating and amid Europe's ongoing debt problems.
The two-year yield was down 0.5 basis point at 0.145 percent , while the five-year yield was flat at 0.335 percent .
The yield curve bear-steepened as superlongs, such as 20- and 30-years, underperformed. The 20-year yield climbed 2 basis points to 1.845 percent , hitting a two-week high, while the 30-year yield rose 2.5 basis points to 1.990 percent.
Prospects are growing that Prime Minister Naoto Kan will resign this month, and the market is eyeing the possibility of additional bond issuance to fund reconstruction after the March quake and tsunami, analysts said.
The US credit downgrade also raised fears that other countries may be downgrade targets, market participants said.
"After the downgrade of US debt, which is seen as a safe-haven, the market is on the lookout for the next one ... one of them is France, because its banks' exposure to Greek debt is large, and the other is debt-ridden Japan," said a fund manager of fixed-income at a Japanese bank.
The cost to insure buyers of Japan's sovereign debt against default held steady, with credit default swaps around 100 basis points. US credit default swaps have eased to around 50 basis points, after rising as high as 63 basis points in the wake of the downgrade.
Market players also said a dismal 40-year JGB auction on Tuesday has been weighing on longer-dated JGBs such as the 30-years.
Copyright Reuters, 2011
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