JGBs pull back on Nikkei gains, Treasuries dip
TOKYO, April 15 (Reuters) - Japanese government bond futures retreated on Tuesday as the Nikkei share average bounced back from a sell-off and tracking a dip in Treasuries overnight on U.S. data showing a surprise rise in retail sales.
Bonds also fell as dealers sold some paper to hedge their books before a 600 billion yen ($5.9 billion) auction of 30-year JGBs later in the session.
Analysts said the coupon of 2.5 percent on the new issue would draw demand as investors seek higher yields further out the curve.
"If I have to buy bonds, I'd rather buy the 30-year," said Freddy Lim, an interest rate strategist at Morgan Stanley.
But bond dealers were also cautious on the outcome after two bad auctions earlier in the month because the severe market volatility in March made it difficult to use futures as an effective hedge in the offerings.
That volatility, sparked by hedge funds rushing to unwind bad positions, also caused sharp swings in long-term yields and swap rates.
JGBs surrendered some of their gains from the previous day as the Nikkei share average .N225 climbed 1 percent, a day after tumbling 3 percent on worries about the U.S. economy after the earnings disappointment delivered by General Electric (GE.N).
JGBs had been steadily falling on easing fears about the extent of the credit crunch's fallout, which has given a boost to stocks, particularly those of battered financial firms.
June 10-year futures 2JGBv1 dropped 0.27 point to 139.63, falling back near a one-month low of 139.13 struck last week.
The benchmark 10-year yield JP10YTN=JBTC rose 2 basis points to 1.355 percent. The five-year yield JP5YTN=JBTC rose 2 basis points to 0.840 percent.
The 30-year yield JP30YTN=JBTC rose 1.5 basis points to 2.435 percent.
Trading was relatively subdued as many market players, from Japanese banks and pension funds to life insurers, were finalising investment plans for the financial year that began this month, analysts said.
"Looking at cash bonds alone, the market continues to lack any clear direction," said strategists at Barclays Capital in a note to clients.
September euroyen futures JEYv1 dipped half a basis point to 99.230 and matched a four-month low of 99.225 struck the previous day, partly due to a renewed rise in money market rates.
Conditions remain tight in overseas money markets despite the array of central bank efforts to pump cash into the banking system, causing slight strains in the yen money market. Continued...
