JGB futures fall as investors stay sidelined

By Chikako Mogi

TOKYO, March 24 (Reuters) - Japanese government bond futures fell on Monday as foreign players were absent due to the Easter break while Japanese investors stayed sidelined before the fiscal year-end this month.

Investors took a break from last week's volatile dealings fuelled by the collapse of investment bank Bear Stearns, which further accelerated moves by foreign hedge funds and other market players to unwind various positions that have soured on them.

Traders said the market anomalies such as negative long-term swap spreads were expected to be corrected as the unwinding of bad bets was likely to have peaked over the past couple of weeks.

Once volatility ceases and the new fiscal year begins next month to give domestic players more freedom in asset allocations, traders said JGBs will draw support from weakness in Japan's economy, as underlined by a government survey released earlier in the session which showed big manufacturers' confidence in business conditions sank to a new low in the three months to March. [JPBUSC=ECI]

"With foreign as well as domestic investors largely staying on the sidelines, JGBs are expected to be in ranges, as are other markets such as stocks and currency," said Makoto Yamashita, chief JGB strategist at Lehman Brothers.

"Recent activity was driven by unwinding of bad positions and Japanese investors have been largely absent, with probably an intention to book profits or buy on dips. But they are not active ahead of the fiscal year-end," he said.

June 10-year futures 2JGBv1 were down 0.18 point at 140.72, well below the five-year peak of 142.00 struck last week.

The benchmark 10-year yield <JP10YTN=JBTC> inched up 0.5 basis point to 1.275 percent while the two-year <JP2YTN=JBTC> yield inched up half a basis point to 0.570 percent. The five-year yield <JP5YTN=JBTC> was up 0.5 basis point to 0.780 percent.