TOKYO: Japanese government bonds were mostly lower on Friday after Germany approved an expansion of the euro zone bailout fund, supporting share prices and other risk assets but reducing safe-haven demand for debt.
December 10-year JGB futures were down 0.15 point at 142.33, having hit their lowest since Sept 2 at 142.27.
"Yields may face upward pressure in the near term as the 'risk-off' mood is easing and as hedge selling is expected before an upcoming 10-year JGB auction," said a trader at a US brokerage.
German Chancellor Angela Merkel's coalition party voted to enhance the European Financial Stability Facility's powers, joining 10 other countries that have approved the expansion and raising hopes that policymakers can take action to prevent the debt crisis from worsening.
But activity remained subdued as most Japanese investors stayed on the sidelines ahead of half-year book closing on Friday. The 10-year cash bond yield was at 1.010 percent, up 1 basis point from Thursday.
The five-year yield climbed 0.5 basis point to 0.365 percent .
The 20-year yield inched 0.5 basis point higher to 0.365 percent .
The JGB market was expected to be supported by risk-averse sentiment in the medium term, however, as worries remain on the euro zone which still faces numerous hurdles ahead of a workable resolution to its problems, analysts said.
Mitsubishi UFJ Morgan Stanley Securities revised its forecast for 10-year JGB yields in the second half of the fiscal year ending in March 2012 to 0.95-1.25 percent from 1.05-35 percent. It said the risk of global economic slowdown is increasing and that the impact of increased debt issuance to fund reconstruction after the March earthquake is likely be less than previously thought.
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