TOKYO: Japanese government bond futures fell on Wednesday hitting a three-week low on concerns about how Japan's government will finance disaster relief as the country's economic prospects worsen with the crisis at the crippled Fukushima nuclear plant set to drag on for months.
Recent rises in yields overseas as well as forex movements also weighed on JGBs.
"The wind has been blowing against JGBs as the prospect for monetary policies overseas has been shifting towards tightening," said Shiji Ebihara, a fixed-income strategist at Credit Suisse.
Ebihara said factors such as firm share prices outside Japan and a weakening yen were hurting JGBs.
June 10-year bond futures closed down 0.29 point at 138.98. They earlier dropped to 138.94, their lowest since March 11, the day a devastating earthquake hit Japan.
A 10-year bond auction on Tuesday showed strong investor appetite, but participants otherwise held off from active buying given expectations that JGBs would remain under pressure from Japan's heavy fiscal burden, which is expected to mount with post-quake reconstruction efforts.
"Even though the auction result was good, the bids didn't last as participants are still cautious about the situation surrounding disaster relief and government plans," said a fund manager at a foreign asset management firm.
The 10-year yield climbed 2.5 basis points to 1.295 percent and the five-year yield rose 2.0 basis points to 0.525 percent.
The 20-year yield edged up 0.5 basis point to 2.070 percent and the 30-year yield climbed 1.0 basis point to 2.220 percent.
The two-year bond yield was unchanged at 0.205 percent. The two-year/10-year yield spread widened to 109.0 points, keeping near a two month high of 109.5 hit on April 4.
Short term bonds prices are seen supported as the Bank of Japan is expected to keep monetary policy on hold on Thursday but to signal its readiness to ease policy further as damage from the earthquake threatens to push the economy into recession.
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