JGBs jump on US recession fears, bank buying boosts 10 yrs

TOKYO: Japanese government bonds futures jumped on Monday, with the benchmark 10-year yield approaching 1 percent, as investors flocked to safe-haven debt after a report on US employment heightened fears of another recession.

In cash bonds, 10-year JGBs outperformed other maturities, with the yield falling 4 basis points to 1.020 percent , reversing course from the recent trend for rising yields. It hit a one-month high of 1.075 percent on Friday. The five-year yield was down 2.5 basis points at 0.320 percent .

Bonds with long maturities were supported by bids from Japanese banks, market participants said. But profit-taking from investors including regional banks was expected to emerge at yields below 1 percent.

Yield declines in superlongs and medium-term maturities were relatively limited ahead of a 30-year auction on Tuesday and a five-year sale on Thursday.

"The 10-year bonds are well supported today partly because of their relatively attractive values. Investors are wary of placing bids on other maturities as upcoming auctions may draw lukewarm demand ... we need to gauge investor appetite as yields are already quite low," said a trader at a US brokerage.

The 20-year yield declined 3.5 basis points to 1.805 percent, the lowest in nearly two weeks . The yield on 30-year JGBs fell 2.5 basis points to 1.985 percent .

September 10-year futures were up 0.42 point at 142.71 after surging to 142.76, their highest since Aug 22. Volume also climbed to more than 19,000 lots this morning, surpassing full-day volume on Friday.

With heightening fears for another recession, more than 40 percent of JGB market players expect yields to fall this week, a Reuters weekly survey showed on Monday.

But the median forecast of 63 market players for the 10-year JGB yield at the end of the week was 1.050 percent , only 1 basis point lower than its close on Friday at 1.060 percent. This was likely due to caution ahead of a relatively busy JGB auction schedule in coming weeks, and on the view that market participants' focus could shift to a possible increase in JGB sales later this year to fund reconstruction.

US Treasuries prices gained on Friday and benchmark note yields again fell below 2 percent after a weak jobs report increased the likelihood that the Federal Reserve would make new bond purchases.

The US economy failed to create new jobs on a net basis for the first time in nearly a year, according to the Labor Department's monthly nonfarm payrolls survey.

Copyright Reuters, 2011