JGB futures hit 2-1/2-yr high, BOJ and US data eyed

By Rika Otsuka

TOKYO, March 6 (Reuters) - Japanese government bond futures struck a 2-1/2-year high on Thursday, as investors covered short positions in the lead contract before its expiry next week.

March 10-year futures 2JGBv1 rose as high as 138.98, their highest since September 2005, with hedge funds seen buying back short futures positions as they were force to unwind their yield-curve-flattening positions, traders said. The lead contract will expire on March 11.

"The fall in the JGB market was very limited, even with the Nikkei's rise this morning. That seemed to force hedge funds to unwind their positions and sent the futures higher," a senior trader at a Japanese bank said.

But trading activity was light overall as many players stayed on the sidelines, with a batch of important economic events taking place in Japan and overseas in the next two days.

The Bank of Japan starts a two-day policy meeting on Thursday at which it is widely expected to leave monetary policy unchanged. BOJ Governor Toshihiko Fukui, who will retire on March 19, is due to give his last post-meeting news conference on Friday.

The BOJ has left rates at 0.5 percent for the past year.

Investors awaited the U.S. government's monthly employment report on Friday for a clue on how aggressively the Federal Reserve will cut interest rates later this month.

The lead March futures contract climbed 0.12 point to 138.86.