JGBs rise on faltering Tokyo shares, Treasury gains

By Chikako Mogi

TOKYO, March 26 (Reuters) - The benchmark 10-year Japanese government bond yield fell to a fresh three-year low while futures rose by more than a half point on Wednesday as players continue dealing with fallout from the credit turmoil.

The global credit market crisis had sparked a massive unwinding of market bets that went sour, leading to sharp swings in JGB futures over the past few weeks.

Futures had surged to a five-year high as foreign players and hedge funds unwound bad bets on a flattening yield curve and in asset swaps, only to tumble 2 points in just a few days. Some analysts said the retreat may have gone too far, encouraging Wednesday's buying.

Financial markets have regained some stability following aggressive steps by the Federal Reserve to calm global credit markets and prevent the U.S. economy from deteriorating sharply, but concerns remained about the U.S. and Japanese economic outlook, analysts said.

The recent decline in oil and commodity prices also fuelled speculation of weakening growth in emerging economies, which has helped offset slowing U.S. growth.

Data showed Japan's trade surplus rose 0.9 percent in February from a year earlier to 970.0 billion yen ($9.71 billion), below an 18.1 percent rise forecast, underscoring the view that solid shipments of Japanese goods to emerging economies offset slowing exports to the United States. [JPTBAL=ECI]

"The rise in JGBs this session may be attributed to various factors, including ongoing unwinding of bad bets, an appetite for flight-to-quality and rising concerns about the Japanese economy which keep alive expectations the BOJ will keep rates low," said Akihiko Yokoyama, chief JGB strategist at JPMorgan Securities.

"While the credit market troubles may have peaked, the U.S. economy will likely languish for a long time," keeping a view in place that the Bank of Japan will keep interest rates low, he said.