JGBs rise, futures hit 4-mth high as Nikkei slips
TOKYO, Aug 7 (Reuters) - Japanese government bond futures climbed to a four-month high on Thursday as worries about the domestic economy's outlook and a fall in Tokyo share prices lured investors towards safe-haven debt.
Bond yields fell broadly, with the five-year yield hitting a four-month low and the two-year yield dipping to its lowest in three months, due to investor demand.
JGBs have rallied over the past couple of weeks as data pointed towards a downturn in Japan's economy, prompting investors to scale back expectations for a Bank of Japan rate rise in the financial year to next March.
"There are not many sellers and there's a lot of interest in buying bonds on dips, especially in the medium-term sector," said a dealer for a Japanese brokerage house.
JGBs also gained a lift because Tokyo share prices fell, with the Nikkei average .N225 down around 1 percent, despite a rise in U.S. share prices and the yen's fall to a seven-month low against the dollar on Wednesday, market players said.
September 10-year JGB futures rose 0.11 point to 137.30 2JGBv1, having pared some gains after climbing to a four-month high of 137.46 earlier. Trading volume was moderate, at around 16,000 contracts.
The 10-year JGB yield fell 0.5 basis point to 1.515 percent JP10YTN=JBTC, edging back towards a four-month low of 1.495 percent hit on Monday.
Yields on medium-term bonds fell the most, with the five-year yield hitting a four-month low of 1.020 percent JP5YTN=JBTC at one stage. It later pulled up from the low but was still down 2.5 basis points on the day at 1.030 percent.
Two-year yields, the sector of the JGB yield curve that is most sensitive to shifts in the monetary policy outlook, fell 1.5 basis point to a three-month low of 0.720 percent JP2YTN=JBTC.
The Finance Ministry offered 500 billion yen ($4.56 billion) in 10-year inflation-linked JGBs with a 1.4 percent coupon. The auction results are due later on Thursday.
CAUGHT OFF GUARD?
"The bond market's sentiment is strong," said Naomi Hasegawa, senior fixed-income strategist for Mitsubishi UFJ Securities.
Data showing that core private-sector machinery orders, a key gauge of corporate capital spending, fell by a smaller-than-expected 2.6 percent in June, did little to allay concerns about the economy's weakness.
This was especially the case because manufacturers forecast that core orders, regarded as a leading indicator of capital spending, would show a 3.0 percent fall in the July-September quarter from the previous quarter.
The fact that trading volumes have been low compared to when JGBs tumbled between early April and mid-June, may be a sign that some investors were caught off guard by the recent rally in JGBs, said Akito Fukunaga, fixed-income strategist for Credit Suisse. Continued...
