JGB futures drift lower as Nikkei inches up

By Masayuki Kitano

TOKYO, April 20 (Reuters) - Japanese government bond futures fell slightly on Friday as Tokyo share prices inched higher, easing some jitters about the possibility of a sell-off in global equities markets.

The Nikkei's 0.5 percent gain .N225 and a 2.8 percent rise in Chinese shares .SSEC in the morning helped soothe worries that Thursday's 4.5 percent drop in China's benchmark stock index might lead to an extended stock market slump.

"There was some worry that there might be a decline in global equities markets triggered by the moves in China," said Naomi Hasegawa, senior fixed income strategist for Mitsubishi UFJ Securities.

Equities markets around the world tumbled after a slide in Chinese shares in late February, prompting investors to cut risky positions and triggering some safe-haven demand for bonds. JGBs were ripe for a pull-back in any event after June futures rose a healthy 0.34 point on Thursday, said a portfolio manager for a Japanese bank.

"JGBs rose sharply yesterday as some market players unwound short positions, and JGBs were bound to lose ground today if left to their own devices," the portfolio manager said.

June 10-year JGB futures fell 0.06 point to 133.84 2JGBv1, edging back towards a three-month low of 133.41 hit on Wednesday. The benchmark 10-year JGB yield slipped half a basis point to 1.670 percent JP10YTN=JBTC as of 0233 GMT.

The medium-term sector suffered the most, with the five-year yield rising 1.0 basis point to 1.235 percent JP5YTN=JBTC.

JGBs are still down on the week, with June futures stuck below last Friday's close of 134.12, after falling earlier this week on caution ahead of the BOJ's twice-yearly outlook report on economic and price developments to be released next Friday.

But JGBs were seen as likely to remain supported on dips as many market players still think the BOJ is unlikely to raise interest rates until the July-September quarter at the earliest, given a lack of consumer price inflation.

Investors, however, are also reluctant to chase JGBs higher at this point due to expectations that the BOJ will raise interest rates gradually, and many market players expect JGBs to be stuck in range trading for a while.

The BOJ holds a one-day policy meeting next Friday, when it issues the outlook report, but it is widely expected to keep the key overnight call rate at a decade-high 0.50 percent.