JGB futures up on weak economic outlook, auction eyed

By Satomi Noguchi

TOKYO, April 10 (Reuters) - Japanese government bond futures rose on Thursday helped by gains in U.S. Treasuries, while a fall in Tokyo stocks kept the safe-haven appeal of debt intact.

Bonds were also supported after weak machinery orders data confirmed the view that the nation's business sentiment is deteriorating, and underlined the Bank of Japan's view that the world's second-largest economy was slowing.

The BOJ dropped a reference to the economy expanding in a monthly report on Wednesday, a phrase it had used for nearly two years, after it left interest rate unchanged. [ID:nT209700]

An auction of five-year JGBs the same day is expected to draw solid demand, giving a boost to medium-term notes.

"The market is returning to a cautious mode ahead of earnings reports coming soon from U.S investment banks, thinking that the stability we saw in recent sessions will be short-lived again," said Maki Shimizu, a strategist at UBS Securities Japan.

June 10-year futures rose 0.43 point to 140.15 2JGBv1 as Tokyo's Nikkei share average fell 1.3 percent .N225.

The benchmark 10-year JGB yield edged down a basis point to 1.330 percent JP10YTN=JBTC.

The five-year yield fell 2 basis points to 0.795 percent JP5YTN=JBTC.

The Ministry of Finance is offering 1.9 trillion yen of five-year notes in a reopening of the current No. 70 issue.

Analysts said solid demand from Japanese banks is expected while the amount of the offer has been reduced from the previous auction last month. The coupon was set at 0.8 percent, unchanged from March.

The two-year yield was up half a basis point at 0.590 percent JP2YTN=JBTC

Japan's core private-sector machinery orders fell 12.7 percent in February from the previous month, that compared with economists' forecast for a 14.0 percent fall. [ID:nTKF003068]

Treasuries gained on Wednesday as recession fears and a bleak corporate profit outlook hurt the stock market and stoked demand for comparatively safe assets such as government bonds.

A report that Merrill Lynch & Co MER.N executives expect the company to record first-quarter write-downs of around $6 billion to $6.5 billion renewed jitters about the credit crisis before a slew of U.S. financial firms' earnings reports due next week.[ID:nWEN4858][RESF/US] (Editing by Hugh Lawson)