JGBs jump on safe-haven buying as stocks fall

By Chikako Mogi

TOKYO, Feb 6 (Reuters) - Japanese government bond futures surged on Wednesday as investors flocked to the safety of government debt after Tokyo stocks tracked steep losses on Wall Street.

The Nikkei share average fell more than 4 percent after U.S. stocks were hit by data showing a record monthly drop in the U.S. services sector to levels not seen since the 2001 recession.

The JGB market was also supported by a view that the Federal Reserve will keep cutting interest rates in a bid to avert a serious recession, keeping downward pressure on JGB yields.

But market players were still largely doubtful the Bank of Japan would cut rates, and JGB prices became top-heavy after some initial buying.

Such expectations were supported by comments from Kaoru Yosano, a heavyweight in the ruling Liberal Democratic Party, who told Reuters on Tuesday that the BOJ has no room to cut interest rates from the current low level. [ID:nTKF002973]

"Weak U.S. services sector data has renewed downward pressure on JGB yields, but at the same time it's hard to build a case for a BOJ rate cut given that few see a global recession," said Akihiko Yokoyama, chief JGB strategist at J.P. Morgan Securities.

While investors were wary of pushing shorter yields lower, demand from those who have not bought JGBs for the current fiscal year will likely lead to a flattening of the yield curve, Yokoyama said.

He said the pace of decline in JGB yields was likely to be slow, with 1.3 percent seen as a floor for benchmark 10-year bonds by the March fiscal-year bookclosing.