JGBs steady, but yields could rise this week

TOKYO: Japanese government bonds were steady on Monday, but could come under selling pressure this week as investors lock in profits at the end of the April-June quarter.

The 10-year JGB futures contract for September ended morning trade nearly flat, down 0.01 point at 143.70 in thin volume. The contract dipped below its 14-day moving average of 143.65 at one point to a session low of 143.61.

The 10-year JGB yield was flat at 0.825 percent.

"The 10-year looks rich, so it might be adjusted ahead of a 10-year auction next week," said a fixed-income fund manager at a Japanese asset management firm. He predicted benchmark yields could rise to 0.850 percent ahead of the sale on July 3.

An auction of 2-year notes on Tuesday is expected to proceed smoothly, with the Bank of Japan now buying up much of the supply at the shorter end of the curve. The central bank now buys bonds with up to three years left to maturity, which it extended from two years at its April meeting.

Sentiment towards Japanese government bonds deteriorated for a second consecutive week, a Thomson Reuters survey released on Monday showed, with most respondents expecting benchmark yields to rise in the last trading week of the quarter. One respondent cited the end of the April-June quarter this week as likely to prompt some investors to shift out of debt into stocks for window-dressing purposes.

Investors will continue to monitor Japanese political developments, with parliament's lower house expected to approve on Tuesday a plan to double the sales tax to 10 percent over three years. While the tax bill's passage would mark progress in restoring Japan's fiscal health, it could come at the price of political turmoil that could delay other necessary cost-cutting steps.

Investors will be watching a European Union summit on Thursday and Friday for any developments that could move that region closer to resolving its debt crisis. Signs of progress could increase investors' risk appetite and reduce demand for fixed-income products.

The 30-year yield was flat at 1.870 percent.