TOKYO: Japanese government bonds started the week with a weaker tone on Monday, with the benchmark yield moving away from a six-week low as the yen eased and US Treasury yields rose.
The benchmark 10-year JGB futures contract ended morning trade down 0.27 point at its session low of 144.28, moving away from Friday's intraday high of 144.58, its highest level since Dec. 13.
"Treasuries came off on Friday, and this being felt in JGB trading today. Even though stocks aren't surging today, the yen is weaker, so it's hard to move in JGBs," said a fixed-income fund manager at a Japanese trust bank in Tokyo.
Early on Monday, the dollar touched a fresh 2-1/2-year high of 91.26 yen. The Nikkei share average turned negative but opened higher, hitting a 32-month high above 11,000.
US Treasuries yields surged to their highest in three weeks on Friday after data showed European banks are repaying more emergency loans than expected.
The 10-year JGB yield rose 2 basis points to 0.740 percent. On Friday, it slumped to 0.720 percent, its lowest since Dec. 14.
"We advise long-only investors to wait for dip buying to around 0.8 percent," said strategists at RBS Securities Japan, in a note to clients on Monday.
The yield curve is likely to reverse course from last week with bear steepening up to the 10-year level and bear flattening in the sectors over 10 years, they said.
Japan's economy will likely grow 2.5 percent in the fiscal year starting in April, the government said on Monday, as Prime Minister Shinzo Abe's ambitious fiscal and monetary policies boost domestic demand and a rebounding overseas economy helps exports.
The government's projection for real gross domestic product is roughly in line with the Bank of Japan's estimate issued last week, but it is stronger than the median estimate for 1.8 percent growth in a Reuters poll.
The recently battered superlong zone fared better than other tenors. While longer maturities have underperformed due to concerns that government's aggressive reflationary policies will eventually lead to inflation, market participants say that month-end buying could emerge this week. Some funds buy longer-dated debt to extend the duration of their portfolios.
The 20-year yield added 1 basis point to 1.780 percent, while the 30-year bond yield was flat at 1.995 percent, after earlier rising as high as 2.0 percent."
"There seems to be some dip-buying whenever the 30-year yield rises above 2.0 percent," the trust bank fund manager said.
The five-year yield added half a basis point to 0.150 percent. Last week, it fell as low as 0.140 percent, its lowest recorded level since Japan started issuing 5-year notes in 2000, in the wake of the Bank of Japan's decision to double its inflation target to 2 percent and make an open-ended commitment to buying assets from next year.
A weekly gauge of sentiment in the Japanese government bond market improved but remained solidly in negative territory for a fourth straight period, the latest Reuters poll showed on Monday.
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