JGB futures ease from 5-year highs as stocks rise

By Chikako Mogi

TOKYO, March 18 (Reuters) - Japanese government bond futures eased from five-year highs on Tuesday as a recovery in Tokyo share prices prompted players to book profits after a sharp rise over the past week.

JGB futures staged their biggest one-day rise since September 2003 on Monday as the takeover of Bear Stearns and the Federal Reserve's latest emergency steps failed to relieve investor concerns over the broadening U.S. credit market troubles.

A near 4-percent plunge in Tokyo shares and the dollar falling to a 13-year low against the yen on Monday also put pressure on foreign players and hedge funds to continue unwinding bad bets on curve-flattening positions, which weighed on super-long maturities.

The gains in JGBs were almost entirely driven by futures, led by trend-following hedge funds and funds betting on the macroeconomic outlook, while Japanese investors remained cautious ahead of the March 31 fiscal year-end bookclosing.

"Activity usually slows around this time of the year and Japanese investors refrain from aggressively buying, so the sharp market moves are most likely related to the unwinding of positions and need to cut losses on bad bets," said Mari Iwashita, senior strategist at Daiwa Securities SMBC.

With the benchmark yield falling to its lowest level in three years, and shorter maturities hovering around levels that could only be justified by a Bank of Japan interest rate cut, JGBs may look appealing to those seeking to book profits on any assets to cover losses from the stock market plunge or credit products.

"A sharp decline in Tokyo share prices will likely prompt investors to take profits wherever they can," Iwashita said.

June 10-year futures 2JGBv1 were down 0.11 point at 141.59, after falling as low as 141.37. Futures hit a fresh five-year high of 142.00 in the evening session on Monday. During the day session, they rose as much as 1.46 point on the day.