Japanese government bonds bounce

 

Japanese government bonds bounced today, with the benchmark yield pulling away from a five-month peak, as investors bought back debt after weaker-than-expected US jobs data.

Futures rose over half a point on short covering following the data and ahead of a contract rollover looming at the end of the week.

"Futures led the way as investors lifted hedges in relief after the US payrolls, which was last week's biggest market event," said Makoto Noji, a strategist at Mizuho Research & Consulting, adding that Federal Reserve Chairman Ben Bernanke saying the central bank could buy more debt gave psychological support to bonds.

"The market also took Bernanke's comments as a hint that US yields will change course and decline going forward, with the Fed sticking to QEII for its stated duration and even continue buying bonds afterwards."

The Fed could end up buying more than the $600 billion in treasuries it has committed to purchase if the economy fails to respond or unemployment stays too high, Mr Bernanke said in a rare televised interview aired on CBS yesterday.

December 10-year futures climbed 0.60 point to 141.48, their biggest one-day gain since mid-September.

The yield curve steepened as 30-year JGBs lagged other maturities ahead of an auction of the maturity on Tuesday on selling by dealers making room on their books, market players said.

The 10-year/30-year yield spread widened by 7.5 basis points to 97.5 basis points.

Analysts expect the new 30-years to draw ample demand from absolute level buyers such as life insurers, enticed by the yield hovering around a six-month high.

The 30-year yield fell 1.5 basis point to 2.130 per cent after touching a six-month high of 2.160 percent.

The benchmark 10-year yield dropped 5 basis points to 1.155 per cent after hitting a five-month peak of 1.205 per cent on Friday.

The five-year yield declined 4 basis points to 0.395 percent.

A further show of steadiness by Tokyo stocks could, however, take momentum away from JGBs.

Tokyo's Nikkei dipped only 0.1 per cent today despite a surge in the yen following the US jobs data, supported by bargain hunting.

"Equities have stood firm and this is a bearish factor for JGBs. It would bear watching whether the yen's strength can begin to weaken them," said a dealer at a foreign brokerage.

Mr Bernanke's comments on QEII came in the wake of Friday's November jobs numbers, which showed US employment increased by a far less-than-expected 39,000 jobs.

Reuters