TOKYO: Japanese government bonds came off their session highs on Monday ahead of a 10-year sale, but not before benchmark yields hit another nine-year low as downbeat US jobs data added to fears about the impact of Europe's deepening debt crisis.
Japan's finance ministry will offer 2.3 trillion yen of 10-year notes on Tuesday, followed by a 30-year bond auction on Thursday.
"The market lost its momentum today because domestic investors were reluctant to chase the market higher ahead of the 10-year auction tomorrow," said Naomi Hasegawa, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Some investors thought it was time to lock in profits rather than build further long positions, and traders are preparing themselves for this week's two auctions, leading the yield curve to show a mild bear steepening bias," she said.
The 10-year JGB yield added half a basis point to 0.815 percent, after dropping to 0.790 percent in the morning session, its lowest level since July 2003.
The 10-year JGB futures contract ended down 0.03 point at 143.79 after rising as high as 144.06 in the morning, the highest level for the front-month contract since October 2010.
'REPELLED BY THESE LEVELS'
Market participants expect the 10-year sale to meet decent demand against the current backdrop of global uncertainly.
"Investors are repelled by these levels, but will still be buyers at the auctions, because there's nowhere else for funds to go," said a fixed-income fund manager at a European asset management firm in Tokyo.
If the 10-year coupon is set at 0.800 percent, if would be the lowest since October 2010, he said.
Underpinning demand for bonds on Monday, Tokyo's broader Topix index fell to its lowest level since late 1983 in morning trade, before ending the day down 1.9 percent.
On Friday, the monthly US payrolls report showed employers added only 69,000 workers in May, far short of the 150,000 predicted by economists.
The data helped push yields on benchmark 10-year US Treasury notes as low as 1.442 percent, the lowest level in records going back to the early 1800s, wh ile German two-year yields pushed further into negative territory.
The dismal jobs data added to expectations that the US Federal Reserve will decide to buy more bonds to stimulate the economy, but Bank of Japan Governor Masaaki Shirakawa expressed caution on Monday about increasing the BOJ's planned purchases of government bonds.
"If the BOJ pressed on too aggressively with purchases of government bonds, it could briefly push down long-term yields but subsequently trigger a jump in yields as bond markets would be too dependent on the central bank's purchases," he told a forum.
The yield on the 20-year JGB rose 1.5 basis point to 1.635 percent, after earlier dropping as low as 1.590 percent.
The five-year JGB yield added half a basis point to 0.205 percent, after falling as low as 0.195 percent earlier. That matched its Friday low, which was its lowest level since June 2003.
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