JGBs track Treasuries lower, Nikkei jump weighs

By Chikako Mogi

TOKYO, May 2 (Reuters) - Japanese government bonds slipped on Friday after a two-day rally, tracking U.S. Treasuries lower and weighed by a jump in Tokyo share prices.

Investors stayed to the sidelines before key U.S. jobs data due later in the day and a long weekend, with Japanese financial markets closed on Monday and Tuesday for the Golden Week holiday.

Investors remained wary of buying bonds actively beyond covering their short positions after a sharp sell-off from late last week, as they had bought bonds when yields were falling steadily early in April and were caught up when yields jumped.

The Bank of Japan is widely expected to hold interest rates steady for a while as the economy is weakening, and many market players expect the BOJ to wait until next year to boost rates after confirming a recovery in the U.S. economy.

But with investors getting hit by the market turbulence over the past several months, it will take some time before they recover from losses and start taking risks and buy bonds, analysts said.

"You can't expect investors to start buying immediately after they are hit, and it will be a balance between their strength and the outlook on the economy and BOJ policy," said Kenro Kawano, senior fixed income strategist at Credit Suisse.

"The market will remain volatile and yields will likely stay under upward pressure, as players put risk premiums on yields from looking at volatility. Time is needed for the market to stabilise," he said.

June 10-year futures 2JGBv1 were down 0.22 point at 136.18, still below last Thursday's low of 137.05 before the heavy selling started last Friday.

The lead futures contract last Friday posted the biggest one-day drop in five years on rising expectations of an eventual BOJ rate hike, with speculation the Federal Reserve would soon end its aggressive rate cut cycle and the European Central Bank remaining vigilant over inflation.

December euroyen futures JEYv1 eased 2 basis points to 99.030. Euroyen futures on Wednesday posted the biggest one-day rise in nine years after the BOJ adopted a neutral stance on policy and eliminated a reference to raising rates in its twice-yearly outlook report.

The benchmark 10-year yield JP10YTN=JBTC rose 2.5 basis points to 1.600 percent, below a six-month high of 1.675 percent hit on Monday.

The five-year yield JP5YTN=JBTC rose 2.5 basis points to 1.135 percent, off a six-month high of 1.280 percent hit a week ago. The two-year yield JP2YTN=JBTC was up 1.5 basis points at 0.750 percent.

The Nikkei stock average .N225 was up 1.8 percent.

U.S. Treasuries fell on Thursday as a stock rally quelled demand for low-risk government bonds and investors raised their expectations that the Fed will hold interest rates steady in the coming months.

Traders also pared bond positions ahead of U.S. payroll data, with analysts expecting nonfarm payrolls to have shrunk by 80,000 jobs last month after an identical contraction in March. (Editing by Chris Gallagher)