Japanese government bonds trimmed losses on Friday despite a fall in US Treasuries, buoyed ahead of US jobs data by a drop in the Nikkei stock average and repositioning by traders. Superlongs - such as 20 and 30 year bonds - outperformed as players including Japanese banks likely purchased the maturities, pursuing income gains by taking on duration risk.
"People are ending up buying on dips as it is not clear how the domestic political situation is going to turn out," said Jun Fukashiro, a fund manager at Toyota Asset Management. Japan's fractious ruling party resumed its bickering on Friday after Prime Minister Naoto Kan hinted he wanted to keep his job into the new year, angering rivals who had voted down a no-confidence motion in return for a promise that he would quit.
JGBs surged on Thursday as concerns about the government's ability to rein in massive public debt receded with Prime Minister Naoto Kan saying he would stay in office for the time being. June 10-year JGB futures were 0.01 point higher at 141.06, recovering from the day's low at 140.86 and holding above the 200-day moving average at 140.89 on Friday, which had been seen as resistance. The benchmark 10-year yield was unchanged at 1.135 percent.
The yield curve flattened as superlongs outperformed. The 20-year yield declined 1.5 basis points to 1.895 percent and the 30-year yield was down 1 basis point at 2.015 percent. But many players are dubious that yields would fall much further, saying signs of a global economic slowdown have already been factored in to bond prices after a series of weak economic data. "Substantial yield declines from current levels would take a build-up of expectations for QE3 in the US and additional easing by the Bank of Japan to address resulting yen appreciation.