JGBs fall after Treasuries hit by U.S. price rises

By Masayuki Kitano

TOKYO, Dec 17 (Reuters) - Japanese government bond futures edged lower on Monday after U.S. Treasuries fell late last week as rising consumer price inflation fanned doubts about whether the Federal Reserve will cut interest rates further.

Losses were tempered by ongoing worries about the outlook for the Japanese economy amid concerns about a U.S. slowdown and turmoil in overseas credit markets.

"Yields may not fall suddenly from current levels but I think chances of them rising seem lower," said Kazuhiko Sano, chief strategist of fixed-income research at Nikko Citigroup in Tokyo.

This is especially the case because JGB yields have not risen this year as much as some investors expected, he said, adding that some market players have probably held off from buying JGBs actively in hopes that yields would rise further.

"That means as far as positioning goes they haven't been able to buy bonds," Sano said.

March 10-year JGB futures fell 0.20 point to 136.26 2JGBv1, edging back towards a one-month low of 135.94 hit last week.

The benchmark 10-year JGB yield rose 2.5 basis points to 1.570 percent JP10YTN=JBTC, approaching a one-month high of 1.585 percent struck last week.

U.S. Treasuries fell on Friday as data showed U.S. consumer prices in November jumped the most in more than two years, driven by surging energy costs.

JGBs have been supported by market expectations that the Bank of Japan will likely hold off from raising interest rates from 0.50 percent at least until the latter half of next year.

Analysts say the BOJ is unlikely to raise interest rates as long as the U.S. Federal Reserve, which has cut the benchmark federal funds rate by one percentage point since September, continues to ease monetary policy.

A senior Ministry of Finance official told Reuters on Friday that the MOF expects the amount of JGBs to be issued to the market in fiscal 2008/09 to be below this fiscal year's planned total of 109.6 trillion yen ($967.4 billion).

"With an outlook that total government bond issuance will decline somewhat next year, we are expecting a drop in marketable JGB issues next year," Shigehiro Kuwabara, deputy director general at the ministry's debt management department, told Reuters in an interview. [ID:nT140106] (Additional reporting by Chikako Mogi)