TOKYO: Japanese government bond futures climbed on Wednesday as share prices fell on further signs that Europe's debt crisis has hurt confidence in the global economy and is starting to weigh on corporate earnings.
December 10-year JGB futures closed the Wednesday morning session up 0.13 point at 142.61, clinging to their 20-day moving average at 142.58.
The Nikkei stock average lost 0.6 percent on Wednesday, after Alcoa Inc's earnings suggested that Europe's debt crisis was set to hurt US corporate profits.
Investors took comfort after Germany and France pledged to deliver a plan to protect Europe's banks, but many market participants doubt that risk assets have much room for further gains, given concerns over whether euro zone policymakers will be able to form a united response to the debt crisis.
"Capital injections into banks by governments or the EFSF (European Financial Stability Facility) mean using tax money and that is not something that's easy to get agreement on, so we still need to watch arguments at meetings such as the EU summit," said Makoto Yamashita, chief Japan interest rate strategist at Deutsche Securities.
Germany and France, the leading powers in the 17-nation euro zone, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit delayed until Oct. 23.
In cash bonds, the 10-year yield edged down 0.5 basis point to 0.985 percent, but stayed in the middle of a range near 1 percent that has been in place since last month. There was little reaction in the JGB market to a retreat in prices of US bonds on Tuesday.
"If the 10-year Treasury yield rises above 2.5 percent, I don't think the 10-year JGB yield will stay at 1 percent ... but at the moment it is staying around that level because European and US yields remain in recent ranges. It is hard for worries about the economy and the financial system to just disappear," said Yamashita.
JGBs have also been well supported by demand from investors who have been looking to purchase JGBs on dips to meet their investment plans for the second-half of fiscal year that started this month, market participants said.
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