TOKYO: Japanese government bonds were higher on Monday, with yields edging back toward a nearly nine-year low hit this month, as investors warily watched developments in Europe.
A government source said on Sunday that Spain may recapitalise its fourth-largest bank, Bankia, which last week asked for 19 billion euros ($24 billion), with government bonds in return for shares.
JGBs were helped by firming US Treasuries prices on Friday, as fears about Greece's upcoming election and funding fears in other euro zone countries, such as Spain, helped push benchmark 10-year Treasury yields close to their lowest levels in at least 60 years.
US markets will be closed Monday for the Memorial Day holiday.
The curve slightly flattened as the superlong tenor fared better than shorter durations, and with the end of the month approaching, some strategists expected that to continue as insurers seek to buy superlong bonds to extend the duration of their portfolios.
But others said Japanese yields would continue to take most of their cues from overseas markets.
"There is a chance that yields will move this week in response to overseas developments, but for now, big moves are not expected," said Credit Suisse strategist Shinji Ebihara.
"Duration extension buying could be a factor on the last trading day of the month, but that might not be a big focus," he added.
The benchmark 10-year yield shed half a basis point to 0.875 percent, while the 10-year JGB futures contract ended morning trade up 0.06 point at 143.12.
The yield on the 20-year bond fell 1 basis point to 1.680 percent, moving back toward its May 18 low of 1.570 percent which was its lowest level since August 2010.
The 30-year bond also fell 1 basis point to 1.835 percent, also edging closer to its May 18 low of 1.730 percent, its lowest since September 2010.
The 5-year yield fell half a point to 0.225 percent.
Japanese government bond market sentiment deteriorated from last week, with pessimism especially evident among real-money investors, who, unlike others in the market, expect the 10-year yield to rise this week.
The minutes of the Bank of Japan's April 27 meeting, released on Monday, showed that policymakers agreed to ease monetary policy that month to ensure the economy resumes a recovery.
But they signaled a pause by complaining of "misunderstanding" in markets that they would keep offering monetary stimulus automatically until 1 percent inflation was in sight.
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