JGBs futures hit 9-1/2-yr high on U.S. fiscal woes, China worries

TOKYO Tue Nov 27, 2012 9:30pm EST

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TOKYO Nov 28 (Reuters) - Japanese government bond prices ticked higher on Wednesday, with benchmark futures prices hitting a 9-1/2-year high, helped by lack of progress in negotiations to resolve the U.S. "fiscal cliff" budget crisis and fall in Chinese shares.

* The benchmark 10-year JGB futures price rose 0.16 point to 144.78, briefly rising to 144.79, their highest level since June 2003, when they had gone to as high as 145.09.

* The current 10-year cash JGB yield fell 1.0 basis point to 0.720 percent, matching its nine-year low hit in July. That level has been a strong support for the yield in the past half year.

* JGBs benefited from worries over the U.S. "fiscal cliff" as U.S. lawmakers remained deadlocked over how to ease the likely shock from $600 billion of fiscal tightening due to kick in early next year.

* The fall in Shanghai shares to a near four-year low was also a talking point among some market players, who are still not convinced of a strong recovery in the Chinese economy.

* "Although recent Chinese economic data is showing signs of improvement, Shanghai share prices seem to suggest that it is still far from a full-fledged recovery," said Takeo Okuhara, fund manager at Daiwa SB Investments.

* "Given dimming hopes of a strong recovery in the U.S., China and Japan, bonds are likely to gain further. I expect the 10-year yield to dip below 0.7 percent by December," Okuhara added.

* The 20-year bond yield fell 0.5 basis point to 1.660 percent. The spread over the 10-year yield stood at 94 basis points, near a 13-year high of 95 basis points hit last week on speculation of more aggressive easing by the Bank of Japan.

* Such speculation was sparked after Prime Minister Yoshihiko Noda earlier this month called an election on Dec 16. as main opposition party leader Shinzo Abe, seen as a front-runner to become prime minister after the poll, is calling for radical easing and setting a higher inflation target.

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