Japanese government bonds inched up on Monday, following a rise in US Treasuries, but gains were limited as investors were wary of buying bonds aggressively ahead of a barrage of domestic economic data due this week. Investors are awaiting figures on industrial output, consumer prices, household spending and employment.
Strong readings would add to the view that the economy is on a solid footing, and that the Bank of Japan may raise rates in August. "Prices could edge up a bit more, but given the upcoming events, gains should be capped in the near term," said Tetsuya Miura, bond strategist at Shinko Securities.
Monday's rise came as the market had regained its composure following a frantic sell-off in the past month, when concerns about rising global bond yields and growing expectations for an August BoJ rate hike drove JGB futures to a seven-year low.
September futures ended the day session up 0.03 point at 131.70, slipping from the day's high at 131.86, but moving away from 130.76 - the lowest since 2000 - hit earlier in the month.
The benchmark 10-year yield fell 0.5 basis points to 1.890 percent, up from 1.875 percent earlier in the session, but well below an 11-month high of 1.985 percent hit earlier in the month. The 20-year yield slipped 1 basis point to 2.265 percent, as investors continued to pick up the new issue offered last week.
Some traders said longer-term maturities were bought on month-end demand from institutional investors wanting to match the duration of their portfolios with those of benchmark indexes.
The Ministry of Finance will offer 1.7 trillion yen ($13.72 billion) in two-year notes on Tuesday with traders expecting a 1.0 percent coupon, unchanged from last month's offer which was the highest in a decade.
Although the yields have gone up to levels that are appealing for investors, they were seen reluctant to aggressively buy before a slew of data due later in the week, wanting to see how the market reacts. "Players are nervous ahead of data including the BoJ's tankan quarterly corporate survey next week," said Masuhisa Kobayashi, chief JGB strategist at Barclays Capital.
As the market currently has factored in a rate increase in August, players were becoming less responsive to such favourable factors as a weakness in stocks or a drop in Treasury yields. In addition to domestic events, investors will also eye moves in Treasuries this week as the Federal Reserve will hold a two-day policy meeting ending on Thursday.