JGB futures jump towards 22-mth high on safety bid

By Rika Otsuka

TOKYO, Nov 27 (Reuters) - Japanese government bond futures jumped towards a 22-month high on Tuesday as investors sought refuge in government debt amid further signs of credit market-related damage at financial firms.

JGBs rose after U.S. Treasuries posted their biggest one-day gains in more than three years on Monday after Goldman Sachs downgraded HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) to "sell" and media reported that Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) was considering layoffs.

"The single biggest market-moving factor is credit concerns at the moment," said Makoto Yamashita, chief JGB strategist at Lehman Brothers in Tokyo.

JGBs have rallied in the past month, as turmoil in global financial markets has fueled investor doubts over whether the Bank of Japan will lift interest rates to 0.75 percent from the current 0.5 percent before the end of this fiscal year in March.

December 10-year futures 2JGBv1 soared 0.55 point to 137.34. The lead contract rose as high as 137.53 last Thursday, its highest since January 2006.

The 10-year yield <JP10YTN=JBTC> fell 4.5 basis points to 1.435 percent, crawling towards a 26-month low of 1.395 percent reached last Thursday.

The Nikkei share average .N225 was down 1.8 percent by midmorning on Tuesday.

The BOJ ended its policy of flooding the banking sector with funds and keeping interest rates near zero in March 2006. It has since raised rates twice, but the credit market turmoil has effectively prevented it from nudging rates any higher.