Japanese government bonds were mixed on Friday, as caution prevailed and limited market activity ahead of the US nonfarm payrolls report later in the session. Yields on both five- and 20-year JGBs hit 10-week lows in early trade in a catch-up to strong results of the 10-year JGB auction the previous day, but follow-through buying did not last long.
The five-year yield was down half a basis point at 0.320 percent. The 20-year yield was also down half a basis point at 1.710 percent, after having fallen as low as 1.705 percent, with traders citing buying from Japanese investors. But the benchmark 10-year struggled to hold onto its momentum from Thursday's robust auction, with ten-year JGB futures giving up earlier gains and slipping 0.05 point to 142.70.
The yield on the 10-year cash JGBs rose half a basis point to 0.950 percent, moving away from a 14-month low of 0.935 percent hit last month, JGB prices got some support from US Treasuries, which edged higher ahead of the jobs data. US employers are expected to have added 150,000 jobs in January, slowing from a rise of 200,000 the month before but still suggesting a moderate recovery in the labour market. Data on Thursday showing new US claims for unemployment benefits fell last week also provided evidence of improving conditions.
The spread between 10-year US and Japanese government bond yields shrank to around 83 basis points earlier this week, the narrowest since early October, and remains near historically low levels, which some traders say presents a JGB buying opportunity. Implied volatilities on JGB options fell to their lowest levels since 2003, with at-the-money volatility for one-month put options falling to around 1.9 percent.