JGBs inch up on weak stocks, lingering credit worry

By Chikako Mogi

TOKYO, April 22 (Reuters) - Japanese government bond futures edged higher on Tuesday, as lingering concerns about the health of global financial institutions and falling stocks kept intact investor appetite for the safety of government debt.

Bank of America Corp (BAC.N), the No. 2 U.S. bank, reported on Monday a fall in first-quarter profit due to write-downs and rising credit losses. [ID:nN21410537]

The Bank of England unveiled a plan on Monday to swap banks' risky mortgage assets for at least 50 billion pounds ($99 billion) of government debt. [ID:nL21163535]

"These developments show it is still too early to remove credit market concerns, and offer opportunities for investors to buy on dips," said Mari Iwashita, a senior market economist at Daiwa Securities SMBC.

The market was top-heavy, however, as investors were taking a cautious approach, avoiding making big bets on the market direction ahead of a key U.S. monetary policy decision and data later this month, analysts said.

Investors' portfolios have been hit by sharp market volatility over the past few months as players unwound positions linked to bad bets or sought to cover losses from various other assets.

"Not many investors have the strength to take huge risks by betting on a direction, so their cautious stance keeps trading in ranges, especially before the Fed and the jobs data," Iwashita said.

The Federal Reserve is widely expected to lower interest rates further at its meeting next week while monthly jobs data, also due next week, will likely underscore the weakness in the U.S. economy.

Players are eyeing whether the Fed will signal an end to its easing cycle while also watching U.S. earnings results for clues on the direction of the stock markets, Iwashita said.

June 10-year futures 2JGBv1 were up 0.07 point at 138.11, off a day high of 138.29 but above a seven-week low of 137.98 hit during the day session on Monday.

The benchmark 10-year yield JP10YTN=JBTC inched up 1 basis point to 1.455 percent, its highest in nearly two months.

The five-year yield JP2YTn=JBTC was also up 1 basis point at 0.975 percent.

Investors are expected to be eager to buy 10-year paper when yields approach 1.5 percent, and around 1 percent for five-year bonds, limiting any sharp rises and putting pressure on the yield curve to flatten, traders said.

Institutional investors such as life insurers have also been steady buyers of longer-dated bonds.

The Ministry of Finance will offer 800 billion yen in 20-year JGBs later in the day, with traders expecting a coupon of 2.2 or 2.3 percent.