JGB futures hit 1-mth low on US jobs, auction awaited

By Naomi Tajitsu

TOKYO, Dec 10 (Reuters) - Japanese government bond futures hit a one-month low on Monday, following weaker U.S. Treasuries after solid jobs data last week suggested the Federal Reserve may not be as aggressive in cutting interest rates as previously thought.

Strong Japanese machinery orders also prompted selling, while dealers shed mid-term bonds to make room on their books for a 2 trillion yen ($17.9 billion) auction of five-year JGBs on Tuesday, which pushed the maturity's yield to a one-month high.

An initial climb in domestic stocks added to selling pressure, but JGBs trimmed some losses after the Nikkei average .N225 relinquished its early gains and slumped 0.5 percent by the end of the morning session.

"The market is reacting to a sell-off in U.S. Treasuries last week and weak equity markets today," said Tatsuo Ichikawa, a JGB strategist at ABN AMRO Securities.

December futures .N225 slipped to 136.16, the lead contract's lowest since early November, before trimming some losses to trade at 136.33 by midesssion, down 0.10 point.

JGBs extended a wave of selling that began last week on signs that progress is being made in cleaning up the mess in the U.S. subprime mortgage market, which has wreaked havoc on global financial markets, and optimism that the U.S. economy may be in better shape that has been thought.

Some analysts said that investors remained vigilant for additional signs that credit problems are deepening and may impact wider economies, concerns of which pushed futures to a 22-month high just last week.

But they added that, barring more news of major problems at financial institutions hit by credit problems, investors may continue to regain their appetite for risk, which may keep selling pressure on JGBs for the rest of the month.