JGBs at new highs as Fed liquidity steps doubted

By Chikako Mogi

TOKYO, March 13 (Reuters) - Japanese 10-year government bond futures hit a 2-1/2-year high on Thursday, as doubts grew about the impact of the Federal Reserve's latest liquidity measures in easing the credit crisis.

The JGB market was supported by a rise in U.S. Treasuries on Wednesday and as Tokyo shares fell close to 2 percent.

Scepticism over the Fed's plan to inject billions of dollars of liquidity in the market kept alive market expectations the Fed would make bold interest rate cuts to try to shore up the U.S. economy.

While market players are watching Japan's political tussle over who will succeed Toshihiko Fukui as governor of the Bank of Japan, their main focus was on the credit crisis.

"The Fed's latest measure was seen as ineffective in resolving the credit market strains, keeping intact investors' flight-to-quality preference," said Akihiko Yokoyama, chief JGB strategist at JPMorgan Securities.

June 10-year futures 2JGBv1 hit a 2-1/2-year peak above 139.80, up 0.36 point and the highest level since Seoptember 2005.

The benchmark 10-year yield <JP10YTN=JBTC> fell 2 basis points to 1.310 percent. The 20-year yield <JP20YTN=JBTC> held steady at 2.045 percent.

The two-year yield <JP2YTN=JBTC> dropped 1.5 basis points to 0.560 percent, while the five-year yield <JP5YTN=JBTC> fell 3.5 basis points to 0.745 percent.