JGB futures hit 1-month low, dragged down by Nikkei

By Naomi Tajitsu

TOKYO, Feb 14 (Reuters) - Japanese government bond futures hit a one-month low on Wednesday, prodded by a climb in domestic share prices to their highest level in nearly seven years as well as a dip in U.S. Treasuries in the previous session.

The two-year yield inched up to its highest level in a month and JGBs extended a tumble from Tuesday as investors continued to shun bonds ahead of upcoming data on domestic growth and a policy meeting by the Bank of Japan next week.

Analysts said the JGB market could inch lower, particularly if the stock market's benchmark Nikkei average .N225 stays at its highest levels since mid-2000. The Nikkei was up 0.6 percent at 17,727.74 by mid-session.

"With the slide in Treasuries and given the Nikkei's climb, a correction in the gains in futures from late last week is inevitable," said Hidenori Suezawa, chief JGB strategist at Daiwa Securities SMBC.

March futures 2JGBv1 ended the morning session 0.14 point lower at 133.91 after sliding to 133.88, its lowest level since mid-January and down from 134.59 hit late last week.

The yield on the benchmark 10-year JGB JP10YTN=JBTC rose a basis point to 1.745 percent. A climb above 1.760 percent would be a 3 1/2-month high, but analysts said a rise to 1.75 percent could prompt investors to pick up the maturity on dips.

The two-year yield JP2YTN=JBTC rose 1.5 basis points to 0.780 percent JP2YTN=JBTC, its highest level since mid-January.

JGBs also took a cue from U.S. Treasuries, which slipped on Tuesday on concerns that Federal Reserve Chairman Ben Bernanke could take an aggressive stance on inflation during his testimony to Congress on monetary policy.

Analysts said JGB investors were waiting to see how the Treasury market would react to Bernanke's remarks later on Wednesday.

GDP, BOJ AWAITED

Sentiment for government debt was also sluggish ahead of Japanese gross domestic product data due at 8:50 a.m. on Thursday (2350 GMT Wednesday). It is expected to have risen 0.9 percent in October-December from the previous quarter, or an annualised 3.8 percent.

Such growth would be the fastest in nearly three years and mark the eighth straight quarter of expansion, and market participants were keen to see if the figure would influence the BOJ board at its Feb. 20-21 policy meeting.

"There remains plenty of risk (regarding the course of BOJ policy) ahead of the meeting," said Tetsuya Miura, a bond strategist at Shinko Securities.

He said the market wanted to see if the central bank would tighten policy following the fourth-quarter figures, given that it did not raise rates during that period.

Market participants are divided on whether the BOJ will raise rates as recent comments by its officials have offered few hints on its interest rate outlook.