JGBs extend losses as Europe deal saps safety bids

TOKYO: Japanese government bonds fell on Friday after a deal on measures to fight Europe's financial crisis sparked relief rallies in riskier assets and dented appetite for safe-haven government debt, pushing the benchmark yield to its highest in two months.

The 10-year JGB yield climbed 2 basis points to 1.030 percent, after rising to 1.040 percent, its highest since September 5.

December 10-year JGB futures were down 0.33 point at 142.19, after falling as far as 142.13, their lowest since last Thursday. Charts are showing bearish signals as the upper-end of the daily Ichimoku cloud has become resistance since mid-October.

"JGBs are taking cues from a surge in US benchmark yields and the Nikkei rising above 9,000. People are adjusting positions as fears have eased of the euro zone debt crisis causing a sharp slowdown in economies," said a trader at a Japanese bank.

The deal in Europe calls for private banks and insurers to take 50 percent losses on their Greek debt and for a leveraging of the bloc's rescue fund.

European shares on Thursday climbed to a 12-week high and Wall Street stocks jumped 3 percent. The Nikkei stock average on Friday gained 1.3 percent to above the 9,000 level for the first time since September 1.

Risk appetite was further supported by data showing the US economy grew at its fastest pace in a year in the third quarter, a welcome respite for a financial system that seemed on the brink of a recession some weeks ago.

But market participants doubt JGB yields have room to rise significantly from current levels as the Bank of Japan is likely to keep to its monetary easing stance for a while. The BOJ eased policy on Thursday by boosting purchases of government bonds, warned of risks posed by a strong yen, and cut its growth forecasts.

"It is possible for the 10-year JGB yield to rise further but not clearly above 1.2 percent unless the US economy provides strong data and the 10-year US yield clearly breaks above 2.5 percent," said the trader, adding that the market will focus on US economic data for the rest of the year.