JGBs futures edge up

Japanese government bond future prices edged up from three-week lows on Friday, with market players saying that US payrolls data could cement expectations for more easing from the US Federal Reserve.
The focus could shift in coming days to a possible increase in JGB sales later this year as new Prime Minister Yoshihiko Noda, who formed his cabinet on Friday, needs to work on a big supplementary budget for reconstruction after March's earthquake - the third extra budget after two relatively small ones.
The market has been wary of a likely increase in debt issuance ... and now that the new cabinet is formed, one could argue that the third extra budget is becoming a reality," said Tadashi Matsukawa, head of fixed income at PineBridge Investments. Noda's appointment of Jun Azumi, a loose political ally with little experience on economic policy, caused a limited response in the market. Although the move was a surprise, Azumi is seen following Noda's fiscally conservative stance.
Instead, the market took cues from gains in US Treasuries on Thursday. US bonds advanced as the latest jobs and factory data stoked fears of a dismal August payrolls report and bets the Federal Reserve will introduce more stimulus to avert a new recession.
Although the Japanese economy is seen recovering near-term after severe disruptions from the earthquake and nuclear crisis, a headwind in the global economy is likely to raise doubts about that scenario. Ten-year JGB futures climbed 0.16 point to 142.29, extending their rebound from a three-week low of 142.04 hit on Thursday on hedge selling for a 10-year bond auction.
Trade volume was subdued, less than half of Thursday's, at 17,678 lots. The yield on cash 10-year bonds fell 2.0 basis point to 1.060 percent, while the 30-year yield dropped 0.5 basis point to 2.010 percent. Their selling is one reason why the JGBs underperformed US Treasuries last month, when the 10-year Treasury yield fell 56 basis points. The 10-year JGB yield dropped just five basis points in the same period.
In the past few days, JGBs have been curbed by selling from foreign accounts, who were aggressive buyers of bonds globally last month, ahead of a long US weekend and a rollover of benchmark futures next week, a trader at a European brokerage said. That helped shrink the yield spread between JGBs and US Treasuries to 107.5 basis points, near a 2-1/2 year low of 106 basis points hit last month.