JGBs down on equities rally and Treasuries fall

By Masayuki Kitano

TOKYO, Dec 25 (Reuters) - Japanese government bond futures fell on Tuesday, hurt by a rise in Tokyo share prices and the previous day's falls in U.S. Treasuries.

Trading activity was light as the year-end approached and Tokyo traders returned from a three-day weekend.

Although JGBs were likely to be supported by bargain-hunting interest investors, the relatively thin market conditions could lead to some choppy trading, said Akitsugu Bandou, senior strategist for Okasan Securities. "There is likely to be some selling pressure in JGB futures, especially since market sentiment wasn't too good late last week. Since trading is thin, if there is even a little bit of selling the decline could become surprisingly large," Bandou said. March 10-year JGB futures fell by 0.31 point from Friday's close to 136.18 2JGBv1. Total volume was a moderate 18,145 lots. Futures fell by as much as 0.41 point earlier.

JGB markets were closed on Monday for a national holiday.

The benchmark 10-year yield rose two basis points to 1.570 percent JP10YTN=JBTC, creeping back towards a peak of 1.585 percent hit earlier this month that was the highest since early November.

In the stock market, the benchmark Nikkei share average rose 1.8 percent .N225.

Bandou at Okasan Securities said falls in JGBs were likely to be limited since investors will probably try to buy JGBs if 10-year yields rise close to 1.6 percent.

JGBs have rallied over the past several months as market players pushed back their expectations on the possible timing of a Bank of Japan rate rise from the current 0.5 percent.

Many now expect the BOJ to wait to raise interest rates until the third quarter of next year because of turmoil in global credit markets and signs of an economic slowdown in Japan. [BOJ/INT]

U.S. Treasuries sagged on Monday in shortened pre-Christmas trading, as a stock rally on news of Merrill Lynch's capital infusion plan pared safe-haven demand for U.S. government debt. Merrill Lynch & Co Inc shored up its capital base by as much as $7.5 billion after selling a stake to Singapore's government and an asset manager, and unloading much of a lending business, as it wrestles with huge subprime mortgage losses. [ID:nN24311966] (Editing by Mike Miller)