JGBs slip ahead of U.S. employment data

Fri Feb 1, 2013 1:14am EST

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TOKYO, Feb 1 (Reuters) - Japanese government bonds eased on
Friday, ahead of key U.S. jobs data which could give a clearer
picture of the outlook for the world's largest economy, and as
risk assets outperformed, boosted by investors betting on a
further drop in the yen.
    Tokyo's Nikkei average advanced 0.5 percent to log
its 12th straight week of gains, its longest such winning streak
since 1959, as the yen hit a 32-month low against the dollar on
mounting expectations that the central bank would step up policy
easing.
    The 10-year yield added 1.5 basis points to
0.765 percent, and was up 4 basis points this week, while
10-year bond futures fell 24 ticks to 144.06, below
their five-day average of 144.16 but above their 20-day moving
average of 144.05.
    "The longer-term trend is for higher yields in Japan, a
little bit higher, on the back of the U.S. and European markets
starting to correct," said Shogo Fujita, chief Japanese bond
strategist at Bank of America Merrill Lynch.
    "It has nothing to do with the Japanese fiscal situation,
nothing to do with the Japanese equity market, in fact. It has
more to do with the fact that the overseas markets have started
to correct, on the upside, and I think the Japanese yield curve
is going to be affected as well."
    Yields on the 20-year bond inched 0.5 basis
point higher to 1.775 percent.
    But the 30-year debt outperformed, with their
yields dipping 0.5 basis point to 1.980 percent.
    The U.S. nonfarm payrolls report, due at 1330 GMT, is
forecast to show a rise of 160,000 jobs, with the unemployment
rate expected to remain steady at 7.8 percent. 
    A better-than-expected figure could raise expectations that
the U.S. Federal Reserve will begin to curb its asset-buying
stimulus within this year, which would sap demand for U.S.
Treasuries and in turn likely pressure JGBs.
    "Looking overseas, if there is big move in yields in either
direction on a upside or downside surprise, that could have some
influence here, but except for that, there is no near-term
directional factor," said a fixed-income fund manager at a
European asset management firm in Tokyo.
    The rally in Japanese equities, spurred by the yen weakness,
has trimmed their yields over benchmark 10-year JGBs.
    According to Thomson Reuters Datastream, the spread between
the Topix index's dividend yield and the 10-year bonds
fell to 1.22 percent on Wednesday, its narrowest since April
2012.
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