Japanese government bond (JGB) prices plunged to four-and-a-half-month lows on Monday, hit by a recent bull run on the Tokyo stock market.
Dealers surmised that early JGB falls were a continuation of selling from last week, when pressure from a rallying Nikkei, the yen's earnest entry into 105 yen territory and jitters ahead of the Bank of Japan's "tankan" business sentiment survey were exaggerated by thin liquidity ahead of the fiscal year end.
As such, some analysts were confident the selling spree had ended, with some even betting that a tankan surprise could provide a boost to lagging JGBs.
"I think the sell-off is ending. I don't really expect too much more selling due to tankan jitters," said Seiji Shiraishi, chief market economist at Daiwa SMBC. "On the other hand, if the tankan reveals any negative surprises, it could spark some buying."
The key June JGB futures contract ended the afternoon session down one point at 137.00 after slipping to 136.90, its lowest since November 11, in early trading.
Meanwhile, the yield on the benchmark 67th 20-year cash bond shot up 8.5 basis points to 2.035 percent - its highest also since November. At 0645 GMT, it was at 2.020 percent.
The cash benchmark 10-year bond yield jumped nine basis points to 1.495 percent. Although it briefly rebounded to around 1.450 percent, it stood at 1.485 percent, eight basis points up on the day, by late afternoon.
The Nikkei stock average, powered by increasing optimism about the Japanese economy, touched a fresh 22-month intraday high in early trading. Despite later slipping into negative territory, stock analysts said the Nikkei appeared set to test the 12,000 level later this week.
Both stocks and bond markets are awaiting the key quarterly tankan survey, due on Thursday.
A Reuters poll of 26 economists on the quarterly March tankan produced a median forecast of plus 10 for the headline large manufacturers' diffusion index. The figure in the December tankan was plus seven after a revision. A positive number means optimists outnumber pessimists.
Analysts also said the possibility of the BoJ ending its ultra-loose monetary policy was putting pressure on longer term bonds like the 20-year sector.