TOKYO: Japanese government bonds were mostly flat or slightly higher on Tuesday, as the market awaits a summit the next day for the latest plan to combat Europe's debt crisis.
European policymakers neared a deal over the weekend on bank recapitalization, and euro zone officials said France and Germany were close to agreement on how to use the European Financial Stability Facility to stave off contagion in the bond market.
Hopes that euro zone leaders would soon decide on a framework to ease the region's debt crisis have given a boost to risky assets over the past couple of days.
Market participants said safe-haven demand for government debt such as JGBs could be dented if Wednesday's plan significantly eases investor concerns.
The benchmark 10-year JGB yield was flat at 1.020 percent, while the five-year yield inched down 0.5 basis point to 0.370 percent.
December 10-year futures were up 0.02 point at 142.23, supported by weaker Tokyo shares, although prices were confined to a narrow range with the market in a wait-and-see mood ahead of Wednesday's summit.
The volume of lead futures was a little over 7,300 lots, far below half of the daily average for the last month of around 9,500 lots.
Analysts said slight changes in market sentiment are emerging. "Bullish sentiment in debt market remains, but bullish factors are decreasing one by one in addition to growing hopes on a resolution to the euro zone debt crisis, recent positive economic data in the United States and China may dent appetite for JGBs a bit for a while," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
Meanwhile, superlongs such as 20- and 30-year bonds, were firmer than other maturities as the 20-year yield declined 1 basis point to 1.760 percent. The yield marked a six-week high of 1.775 percent on Monday as demand for safe harbours ebbed.
"There are still many domestic investors who want to buy JGBs at higher yields to satisfy their investment plans for the second half of the fiscal year (ending in March)," said a fund manager at a Japanese asset management firm.
"The recent rise in the yen is denting stock prices and keeping market hopes for more BOJ easing simmering, underpinning JGBs," he said.
Relief that the government will not issue as much extra debt as initially expected is also seen providing follow-through support for JGBs.
JGBs were underpinned last week as the size of the government's extra debt issuance to help finance the rebuilding of the country after the devastating earthquake and tsunami in March was smaller than expected.
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