TOKYO: Japanese government bonds rose on Monday as investors took cues from gains in Treasuries with worries about the euro zone debt crisis overshadowing an encouraging US jobs report, pushing the 10-year JGB yield to its lowest in a week.
The yield curve bull-flattened despite a relatively busy auction schedule ahead of the year-end as demand from investors such as pension funds and life insurers underpinned longer maturities, market participants said.
"There are people who have to buy bonds because there will be a significant amount of JGB redemptions this month," said a trader at a Japanese bank.
"In spite of the strong jobs data, US Treasuries were higher on Friday. Given uncertainties over the euro zone debt crisis, some people have been kind of forced to buy as December began," he added.
A weekly Reuters survey also showed that sentiment in the JGB market improved sharply on the view that European Union leaders were not likely to come up with a convincing rescue plan soon to resolve the debt crisis, keeping safe-haven demand for JGBs intact.
The 10-year JGB yield declined 2 basis points to 1.045 percent. The yield rose to a four-month high of 1.090 percent last week after a weak German bond sale shook investors' confidence, but the yield came back down after the world's major central banks acted to ease funding strains among banks on Wednesday.
The 20-year yield dropped 2 basis points to 1.775 percent.
The five-year yield was down 1 basis point at 0.345 percent, falling back to the middle of its 0.3-0.39 percent range of the past four months.
The yield curve bull-flattened as the five-/20-year yield spread continued to shrink to 143.5 basis points from a three-month high of 145 basis points hit earlier this month.
December 10-year JGB futures were 0.09 point higher at 142.17, marking their third straight day of gains.
Although there is a potential risk that JGBs will face high volatility again ahead of key policy events in Europe this week, some market players expect the 10-year yield to fall below 1 percent after seeing decent results of JGB auctions last week.
On Thursday, the European Central Bank will hold a regular policy meeting and is expected to cut interest rates. European Union leaders will also meet on Thursday and Friday, to seek agreement on a convincing rescue plan.
Data on Friday showed the US jobless rate dropped to 8.6 percent from 9 percent, raising hopes about the outlook for the US economic recovery.
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