CORRECTED-JGB market sentiment lowest since July - Reuters survey

Sun Jan 6, 2013 9:25pm EST

(Corrects forecast for 10-year yield in fourth paragraph to 0.850 percent.)

TOKYO Jan 7 (Reuters) - A weekly gauge of sentiment in the Japanese government bond market skidded to its lowest level since July, the latest Reuters poll showed on Monday.

The poll's JGB bull-bear diffusion index, calculated by subtracting the number of bearish market players from those who are bullish, came in at minus 54, its lowest reading since minus 61 in the July 2 survey.

In the Dec. 25 survey, the bull-bear index came in at plus 4 , which was its first positive reading since late October.

The median forecast for the benchmark 10-year JGB yield at the end of this week is 0.850 percent, 1.5 basis points above Friday's closing level of 0.835 percent . The yield hit a four-and-a-half-month high of 0.840 percent on Monday morning, up half a basis point.

The survey found that 66.7 percent of respondents expect JGB yields to rise this week, up from 24.1 percent in the previous survey.

Some 20.5 percent expect yields to trade sideways this week, down from 48.3 percent in the previous poll, while 12.8 percent expect them to fall, down from 27.6 percent.

JGBs have been pressured by concerns that Japan's new government headed by Prime Minister Shinzo Abe will increase debt issuance to fund massive fiscal stimulus.

On the supply side, the Ministry of Finance will hold an auction of 10-year bonds on Tuesday this week.

JGBs have also been pressured by a recent drop in U.S. Treasuries prices, with benchmark yields rising to eight-month highs last week on worries the U.S. Federal Reserve could pare its asset purchases within 2013 if the economy improves.

The online survey of 97 JGB market participants from major institutions received 39 responses, for a response rate of 40.2 percent. These included 19 "real money" investors from institutions such as banks, pension and investment funds and insurance companies.

The latest survey was conducted from Friday to 8:00 a.m. on Monday (2300 GMT on Sunday). The previous survey was released on Dec. 25, as there was no survey last week due to the long Japanese New Year's holiday. Tokyo markets opened for 2013 trading on Jan. 4. (Reporting by Yoshiyasu Shida; Writing by Lisa Twaronite; Editing by Jacqueline Wong)

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