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 global credit jitters and growing expectations of a Bank of Japan rate cut later this year sparked buying of safe-haven government debt.

But JGB futures turned lower in the afternoon as Tokyo stocks extended gains. The Nikkei share average .N225 was up 2 percent in early afternoon, rebounding from a six-week closing low hit the previous day.

March 10-year futures rose in midmorning trade, with hedge funds seen buying back short futures positions as they were forced to unwind their yield-curve-flattening positions, traders said.

That boost in the JGB market also came as U.S. credit market troubles were making waves in Japan, keeping two-year yen swap spreads near an all-time high and driving the benchmark Japanese corporate credit derivatives index to a record peak.

"Investors are taking their cue from a widening in CDS spreads, trying to avoid risks," said Atsushi Ito, a JGB strategist at Morgan Stanley.

The yield curve has been steepening after data showed on Wednesday that Japanese firms' capital spending posted the biggest fall since 2002.

"Investors are likely to pick up more five-year notes as the market could start to expect the economy to slow further," said Morgan Stanley's Ito.

A Reuters poll taken after the release of the capital spending data showed on Wednesday that forecasts for revised October-December gross domestic product figures by 21 economists centred on growth of 0.6 percent from the previous quarter, or an annual pace of 2.3 percent.