TOKYO: Japanese government bond futures edged down on Monday as risk appetite revived slightly following the agreement by European leaders to draft a new treaty for deeper economic integration . Meanwhile broker hedging weighed on the market ahead of a five-year JGB auction.
In cash bonds, the five-year yield climbed 0.5 basis point to 0.350 percent, off a two-week low of 0.335 percent hit on Friday. The benchmark 10-year bond was untraded.
"JGBs reacted positively to the euro-zone deal when the headlines came out on Friday, but they are weighed down today because US bond yields and stocks rose unexpectedly," said a trader at US brokerage.
"Trading is subdued ahead of two debt auctions, which is keeping prices top heavy," he added.
Europe secured an historic agreement to draft a new treaty for deeper economic integration in the euro zone on Friday, though markets remain uncertain whether and when more decisive action will be taken to stem the debt crisis.
March 10-year JGB futures, which took over as the lead contract on Monday, were down 0.07 point at 141.95 on Monday.
The Nikkei share average gained 1.3 percent by midday.
Japan's Ministry of Finance will offer 2.5 trillion yen ($32 billion) of five-year bonds on Tuesday, up 100 billion yen from the previous auction. A 1.1 trillion yen auction of 20-year bonds is due on Thursday.
While the new five-year bonds are expected to be supported by demand from investors on views that the Bank of Japan will keep monetary policy loose, some participants were cautious about the 20-year bond auction, seeing a bleak outlook for the maturity due to increased issuance.
The market expects Japan's government to increase its issuance of 20-year bonds in the fiscal year starting next April as the nation's borrowing needs look set to rise due to rising social welfare costs.
Sentiment towards JGBs turned negative for the first time in two weeks as market players were cautious about buying ahead of auctions this week, a Reuters weekly survey showed on Monday.
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