JGB futures hit 2-1/2-year high on stocks, Treasuries

By Satomi Noguchi

TOKYO, March 7 (Reuters) - Japanese government bond futures struck a 2-1/2-year high on Friday boosted by sharp gains in U.S. Treasuries due to renewed turmoil in credit markets and more losses at financial firms.

The lead futures contract jumped more than half a point in early trade as Tokyo shares tumbled, prompting investors to shift funds into safe-haven government debt.

JGBs also gained on deepening U.S. credit market troubles after news that funds failed to meet margin calls and that they could dump even high-quality mortgage assets.

That kept two-year yen swap spreads near an all-time high and held the benchmark Japanese corporate credit derivatives index close to a record peak hit this week.

Investors flocked to shorter-dated bonds as a safe place to park their funds, pushing the five-year yield down to a level not seen since November 2005.

"Yen swap spreads widened as they reflect rising counter-party risk, including market players such as major foreign banks," said Tetsuya Miura, a bond strategist at Shinko Securities.

March 10-year futures 2JGBv1 rose 0.23 point to 139.12 after jumping as high as 139.50, their highest since September 2005.

JGBs extended their rally, which had started in late February, as expectations grew that a downturn in the U.S. economy will slow the Japanese economy and may prompt the Bank of Japan to cut interest rates later this year.