Japanese bonds rise

Japanese government bond prices rose and the benchmark yield hit a two-week low on Friday as hopes dimmed that a European Union summit would make substantial progress towards containing the region's debt crisis, dragging down equities and lifting demand for safe-haven JGBs.
The rise was in line with other government bond markets overseas after the European Central bank, while cutting interest rates as expected, stopped short of offering stronger measures, such as more buying of government bonds. European Union leaders on Friday sealed a new fiscal pact ensuring tougher budget discipline but failed to agree on a treaty change to enshrine the rules.
JGBs were supported by investor demand on the view that yields may not go up after the EU summit, said a trader at a US brokerage. The 10-year JGB yield fell as low as 1.010 percent, its lowest since November 25, and moving away from a four-month peak of 1.090 percent hit last week. The five-year yield was down 1.5 basis points at 0.340 percent.
JGB futures pared earlier gains after European leaders said the eurozone planned to loan up 200 billion euros to the International Monetary fund (IMF), but ended in positive territory. March futures, which will take over as the lead contract on Monday after trading in December futures ended on Friday, closed up 0.28 point to 142.02. They earlier hit a session low of 141.85.
Japan's Nikkei stock average dropped 1.5 percent, along with its regional peers. "The headlines stepped up more pressure on the European Central Bank to expand its bond purchases and to have common eurozone bonds as these are the only ways to keep the debt crisis from falling into a negative spiral," said Takeo Okuhara, a fund manager at Daiwa SB Investments.
While a failed German bond auction late last month had sparked fears that investors could start dumping Japanese bonds given Japan's indebtedness, such worries seem to have eased after recent successful Japanese bond auctions. But their buying is expected to slow as the 10-year yield falls near 1 percent, analysts said, with many investors not wanting to repeat their experience last November when a drop in the 10-year yield to a seven-year low of 0.82 percent was followed by four months of a painful bear market.