JGB futures hit one-month low

Japanese government bond futures eased on Friday to a one-month low as the Nikkei average hit a four-month peak and nearly recovered to pre-quake levels, after stronger US data raised hopes that a slowdown in the global economy may be temporary. But the rise in yields and fall in prices were limited as buying on dips by cash-rich Japanese investors, while sporadic, supported JGBs at lower prices, players said.
"Many people in the JGB market are still doubtful that the stock market will keep rising," a trader at a Japanese brokerage firm said. Players were seen staying on the sidelines, and trading volume in cash bonds was subdued ahead of US payroll data to be released at 1230 GMT on Friday.
September 10-year JGB futures were down 0.12 point at 140.58, having hit 140.51, their lowest since June 1. The Nikkei rose at one point as high as 10,207.91, not far from 10,254.43, a level last seen on March 11 when the massive earthquake and tsunami devastated north-east Japan and triggered a nuclear crisis, prompting a two-day rout on the Tokyo stock market.
JGB yields could rise further along with Treasury yields if payroll data on Friday points a significant improvement in the job market and eases worries that the US soft patch could drag on. But surprisingly strong private-sector jobs data on Thursday caused some economists to raise their forecasts for the US government's payroll reading for June, and the debt market's reaction to the data may be subdued, with stronger figures factored in, players said.
The median of forecasts from analysts polled by Reuters is for the government to report 90,000 new jobs were added in the US in June, up from 54,000 new jobs in May. There are also worries that US bond auctions next week could draw tepid demand after the Federal Reserve wound up its $600 billion bond buying programme at the end of last month. Dismal auctions last week pushed bond yields sharply higher.
A significant rise in JGB yields was seen unlikely, however, as cash-rich Japanese investors are keen to buy on dips to meet their plans to build portfolios for the fiscal year that started in April, market participants said. The benchmark 10-year yield edged up 0.5 basis point to 1.175 percent but stayed below a two-month high of 1.180 percent hit on Thursday, while the yield on the five-year bond was unchanged at 0.440 percent.
In superlongs, the 30-year yield inched down 0.5 basis point to 2.090 percent, after having hit a two-month high of 2.105 percent, weighed down by selling as brokers adjusted positions after an auction on Thursday. But buy-and-hold investors such as life insurers were seen interested in buying above 2.1 percent, looking to match durations of their liabilities with their assets, and it appeared unlikely the yield would rise any further.
The 20-year yields was down 1 basis point at 1.935 percent, off a one-month high hit the previous day, as buying from investors such as Japanese banks emerged on dips. The yield spread of the 5- and 20-year bonds tightened to 149.5 basis points from 151 basis points marked on Thursday, the widest in a month.
US Treasuries prices fell on Thursday as encouraging private-sector jobs data and European Central Bank support for Portugal reduced worries about the economy and sovereign debt problems in Europe. Chinese investors were net buyers of yen bonds for an eighth straight month in May, although they scaled back from their massive purchases in April, Japanese Ministry of Finance data showed on Friday.