JGBs rise, helped by rebound in U.S. Treasuries

TOKYO, July 9 Mon Jul 8, 2013 10:21pm EDT

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TOKYO, July 9 (Reuters) - Benchmark 10-year Japanese government bond prices rose on Tuesday, recovering some of the previous day's decline, helped by a rebound in U.S. Treasuries following a sharp sell-off on the back of strong U.S. jobs data late last week.

* The 10-year yield dipped 1 basis point to 0.870 percent. The benchmark yield gained 2.5 basis points on Monday as it tracked a 23.3-basis point jump in the 10-year Treasury yield on expectations that upbeat jobs data would increase the likelihood of the Federal Reserve starting to scale back its stimulus in the coming month.

* Gains in JGB yields were limited on Monday, however, with the Bank of Japan buying 1 trillion yen ($9.9 billion) of JGBs with residual maturities between one and 10 years to support the market, as part of radical monetary policy to drag the country out of persistent deflation.

* "In the near term, I expect the sell-off in U.S. Treasuries will have only limited impact on the JGBs because of the BOJ's massive buying to support the JGB market," said Yuya Yamashita, rates strategist at JPMorgan in Tokyo.

* "Most of market participants expect such price keeping operations if JGB market volatility heightens again," Yamashita said.

* The BOJ is to begin its two-day policy meeting on Wednesday, and market participants expect the central bank to stand pat after it stunned financial markets on April 4, promising to inject $1.4 trillion into the economy in less than two years.

* "They will do nothing in the upcoming monetary policy meeting," Yamashita said. "Equities have been recovering. CPI has been improving as seen in the May reading ... The BOJ Tankan survey shows that the sentiment among corporates has been improving."

* Ten-year JGB futures added 0.18 point to 142.40, breaking above their 14-day moving average of 142.38 but holding below their 20-day moving average of 142.47.

* The five-year yield eased 0.5 basis point to 0.320 percent, while both the 20- and 30-year yields were unchanged at 1.755 and 1.880 percent, respectively.

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