TOKYO: Japanese government bonds extended losses on Monday as a rise in yields on euro-zone debt pressures investors to take profits from JGBs and prepare for expected losses in risk assets.
The 10-year JGB yield rose 4 basis points 1.065 percent, a three-month high.
Three-month euro-yen interest rate futures were down 0.5 basis point at 99.635, a fresh eight-month low.
"A poor German bond auction last week fuelled fears that the euro-zone debt crisis could get out of control, and this is still weighing on JGBs," said a fund manager at Japanese asset management firm.
"But investors are just adjusting positions and I don't think their selling is based on a perception that JGBs are falling into the same category as those facing the debt mess in the euro zone," he added.
Italian bond yields soared on Friday after borrowing costs rose sharply at a short-term debt auction, raising questions over the euro zone's future as politicians failed to come up with a decisive solutions to the debt crisis.
Ten-year German yields were 7 basis points higher at 2.2 percent, testing the upper end of a range in place since August. The underperformance of Bunds last week has left them yielding almost the same as British 10-year gilts and around 30 bps more than US Treasuries.
A Reuters weekly survey showed on Monday that sentiment in the JGB market had worsened sharply, but the median forecast was for the 10-year JGB yield to go no higher than 1.050 percent by the end of this week, as market participants expect bargain hunting from cash-rich investors at higher yields.
The Nikkei average climbed almost 2 percent on Monday, helped by climbs in US stock futures and a report that the International Monetary Fund was considering support for Italy as bond yields across the euro zone spiked to new highs.
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