JGB 10-year yield hits 11-month high on Treasuries

By Shinichi Saoshiro

TOKYO, June 16 (Reuters) - The benchmark 10-year Japanese government bond yield hit an 11-month high on Monday as a rise in Tokyo shares and a slide in U.S. Treasuries late last week prompted investors to sell government debt.

But losses in JGBs were limited by remarks by Bank of Japan Governor Masaaki Shirakawa on Friday that allayed speculation the central bank will hike interest rates in the coming months to contain inflation.

The BOJ governor said Japan's economic and price conditions differ from those in the United States and Europe, stressing that each nation should decide monetary policy based on its own conditions. [ID:nTKF003210].

JGBs have been buffeted in the last two weeks by surprisingly blunt anti-inflation rhetoric from top central bankers in Europe and the United States that were seen paving the way for a potential BOJ tightening later this year.

Shirakawa's remarks triggered short-covering in JGB futures in early trade, traders said. But the rise in futures quickly lost momentum once the unwinding of positions ran its course.

"Short-covering is having a stronger impact on euroyen futures," said Tatsuo Ichikawa, a fixed-income strategist for ABN AMRO Securities. Positions previously built up in anticipation of an early BOJ hike are being unwound, said Ichikawa.

In shorter-dated JGBs, the most sensitive to changes in the BOJ monetary policy outlook, yields declined. Those of longer-dated maturities edged higher in contrast.

"In addition to the slide in Treasuries, position adjustments ahead of tomorrow's 20-year JGB auction are weighing on the long end," said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Securities.

In choppy trading, JGB futures edged down 0.09 point to 132.26 2JGBv1, staying near an 11-month low of 132.05 struck on Friday. The lead futures contract rose as high as 132.57 in early trade.

The benchmark 10-year yield rose 2 basis points to 1.885 percent, touching a fresh 11-month high of 1.890 percent earlier JP10YTN=JBTC.

The two-year yield, the most sensitive to changes in the monetary policy outlook, fell 3 basis points to 0.980 percent JP2YTN=JBTC.

The 20-year JGB yield rose 1.5 basis points to 2.390 percent, after touching a two-year high of 2.405 percent JP20YTN=JBTC.

The lead three-month euroyen futures contract rose 3.5 basis points to 98.770 JEYv1.

The BOJ board kept interest rates steady at 0.50 percent on Friday, as widely expected. The central bank has left monetary policy unchanged since raising the overnight call rate target from 0.25 percent in February last year.

Tokyo's Nikkei share average .N225 was up 1.5 percent by midday. [.T]

U.S. Treasuries fell Friday on persisting concerns that the Federal Reserve will have to start raising rates in the coming months to fight inflation. [US/] (Editing by Michael Watson)