JGB 10-yr yield hits 2-mth high on issuance worry
* Benchmark 10-year yield rises to 1.4 percent
* Lead 10-year JGB futures hit two-month low
* Cash bonds mixed, two-year JGBs and 30-year bonds firmer
* Ongoing worries about debt issuance weigh on market
TOKYO, Oct 27 (Reuters) - The benchmark 10-year Japanese government bond yield hit a two-month high on Tuesday, hurt by uncertainty over the size and details of upcoming debt issuance.
Investors are bracing for JGB issuance to the market to be increased this fiscal year to offset a tax revenue shortfall and to make up for weak demand for JGBs among retail investors.
They are also worried about how much debt may be issued in the 2010/11 fiscal year that starts next April.
This week's rise in 10-year U.S. Treasury yields on worries that the Federal Reserve may be mulling stepping away from a commitment to keeping interest rates near zero for an extended period, also weighed on JGBs.
"Although we are at the type of levels that attract sporadic buying, the risks are not going to go away immediately, so when there is a rebound the market tends to get hit by selling," said Jun Fukashiro, chief fund manager for Toyota Asset Management's investment management department.
"It is hard to get a sense of what a likely extra budget to deal with tax revenue shortfalls and additional economic steps might look like," Fukashiro said, adding that worries about extra debt issuance could push the 10-year yield to as high as 1.6 percent by the end of next March.
The benchmark 10-year JGB yield edged up 0.5 basis point to 1.400 percent JP10YTN=JBTC, its highest level since mid-August.
Ten-year cash JGBs extended their losses in the wake of their sell-off on Monday, when the 10-year yield rose three basis points for its biggest one-day rise in three months.
Lead December 10-year JGB futures dipped 0.13 point to 137.86 2JGBv1 in regular session trading.
The lead futures contract extended its losses in the evening session and fell to its lowest level in more than two months of 137.77 1JGBv1.
Selling of JGB futures by hedge funds that trade based on their views of technical charts likely exacerbated falls in futures, said a trader for a European brokerage house, adding that volumes were relatively robust. Continued...
