JGBs supported by concerns over slowing global growth

TOKYO Mon Oct 8, 2012 10:26pm EDT

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TOKYO Oct 9 (Reuters) - Japanese government bonds were steady on Tuesday, as heightened worries about slowing global growth and sagging stocks supported demand for fixed income assets.

* The International Monetary Fund cut its global growth forecast on Tuesday to a 3.3 percent expansion for 2012, down from its July estimate of 3.5 percent, and warned of a prolonged slump if U.S. and European policymakers fail to address their economic problems.

The IMF also said on Tuesday China's economic growth is expected to weaken to 7.8 percent this year.

* JGBs initially weakened, with futures opening lower, after a sell-off in U.S. Treasuries on Friday after upbeat U.S. employment data. The U.S. Labor Department said the unemployment rate fell to a four-year low of 7.8 percent in September, down from 8.1 percent in August, as 114,000 jobs were added.

Both U.S. and Japanese bond markets were closed on Monday for respective holidays.

* "Investors who were hoping to buy on a dip today after Friday's U.S. employment data were disappointed, when that sell-off failed to emerge," said a fixed-income fund manager at a Japanese trust bank.

"There are still people who want to buy, but the time is not now," he said.

* The Nikkei share average fell 0.3 percent.

* The 10-year yield was flat at 0.775 percent after earlier rising to 0.780 percent. Benchmark yields hit an eight-week low of 0.755 percent last week.

* Ten-year JGB futures ended the morning session up 0.01 point at 144.11, after falling as low as 144.03.

* On the JGB supply-side, superlong maturities could face pressure ahead of the Ministry of Finance's 30-year bond sale on Thursday.

* Yields on 20-year bonds were flat at 1.660 percent, while those on 30-year debt added half a basis point to 1.925 percent.

* A gauge of sentiment in the Japanese government bond market has gone deeper into negative territory, though investors expect buying at the beginning of the second half of the fiscal year to keep yields from rising far from recent ranges, a weekly Thomson Reuters survey showed on Tuesday.

* In recent weeks, some investors have built up long positions in the 10-year tenor, which could be setting the stage for a correction, some strategists said.

"If there is a rise in overseas yields on top of such a domestic build-up in excess long positions, there could be a temporary surge in yields," said Barclays strategist Noriatsu Tanji in a note to clients.

"We still expect yields to stay in a range around 0.8 percent for now due to domestic demand factors, but also see a gradually increasing risk that they will rise," Tanji said.

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