JGBs rebound as credit worries pummel equities

By Masayuki Kitano

TOKYO, Nov 2 (Reuters) - Japanese government bonds jumped on Friday, tracking solid gains in U.S. Treasuries overnight as a fresh wave of credit worries drove down stocks on Wall Street and then in Tokyo.

The December 10-year JGB futures contract rose by as much as 0.93 point to 136.15 at one point, nearing last week's peak of 136.26 that was the highest since mid-September. JGB futures were on course for their biggest one-day rise since Aug. 17, when Tokyo's Nikkei share average plunged more than 5 percent amid mounting worries about turmoil in overseas credit markets.

"As was the case yesterday, the JGB market is now very susceptible to moves in U.S. markets," said Akito Fukunaga, fixed income strategist for Credit Suisse in Tokyo.

U.S. Treasuries jumped on Thursday as steep stock market losses and a resurgence in credit worries spurred demand for safe-haven investments a day after the Federal Reserve lowered the benchmark federal funds rate to 4.5 percent.

The December futures contract rose 0.70 point to 135.92 2JGBv1 almost completely erasing its 0.77 point loss on Thursday, when it logged the biggest one-day drop for a lead futures contract in about eight months.

The benchmark 10-year yield fell 6 basis points to 1.605 percent <JP10YTN=JBTC>, and the five-year yield fell 7 basis points to 1.090 percent <JP5YTN=JBTC>.

VOLATILE MARKET

The five-year/10-year yield spread widened to 51.5 basis points, edging close to a one-year high of 53.5 basis points hit earlier in the week.