Japanese government bond futures inched down on Friday, despite a rise in US Treasuries the previous day, with traders reluctant to chase prices higher ahead of a speech from Federal Reserve Chairman Ben Bernanke and before Monday's vote to choose the new leader of Japan's ruling party.
Medium-dated cash bonds and futures were weighed by position unwinding after decent demand emerged at a 20-year JGB auction the day before, though superlongs were likely helped by bids from players including buy-and-hold investors such as insurers, traders said.
The yield curve flattened as the spread between five- and 30-year yields tightened to 165 basis points after expanding to a four-month peak of 167.5 basis points on Thursday. The 10-year yield was flat at 1.035 percent, staying near a high for the week of 1.040 percent marked on Thursday.
September 10-year JGB futures closed down 0.10 point at 142.31, having fallen as far as 142.23, and breaking below their 20-day moving average at 142.31 for the first time since mid-July. On charts, futures maintained their bullish momentum mostly on trend indicators such as moving averages, while oscillators, such as the RSI and stochastics, were nearing oversold levels.
The ruling Democratic Party of Japan (DPJ) selects its new leader, and the country's sixth prime minister in five years, in a vote on Monday as the country struggles to rebuild after a devastating tsunami, cope with the rising yen and curb massive public debt.
Of the candidates likely to replace Prime Minister Naoto Kan, analysts say the bond market would probably welcome the appointment of Finance Minister Yoshihiko Noda, who is a known fiscal hawk and favours raising taxes to reduce the country's reliance on debt.
Medium maturity JGBs eased as investors including big Japanese banks likely trimmed their positions to buy other maturities, market participants said. The five-year yield edged up 0.5 basis point to 0.330 percent, hitting a high for the week and moving away from a nine-month low of 0.290 percent marked earlier this month.
On the other hand, superlongs such as 20 and 30 years outperformed other maturities, with the 20-year yield staying flat at 1.855 percent, while the 30-year yield dropped 1.5 basis points to 1.980 percent. US Treasury debt prices rose on Thursday and were supported in Asia on Friday as dwindling expectations of an economic fix from Fed chief Bernanke put the focus back on the country's weak growth outlook and worries over the European debt crisis.