JGB futures track Treasuries up, U.S. data awaited

By Satomi Noguchi

TOKYO, Feb 1 (Reuters) - Japanese government bond futures rose on Friday, tracking overnight gains in U.S. Treasuries on fresh concerns about the troubled financial sector while Tokyo shares slipped and prompted safety bids in the debt.

Treasuries rose on Thursday after rating agency Standard & Poor's cut its "AAA" ratings on FGIC Corp's bond insurance arm and placed its top ratings on the bond insurance arm of MBIA Inc (MBI.N) on review for downgrade [ID:nWNA8162].

Dealers said the safety appeal of government bonds is likely to remain intact as concerns grow that troubles in the U.S. bond insurance industry could have a huge negative impact on credit markets.

More downgrades of U.S. bond insurers could cause deeper financial losses on top of last year's mortgage debacle and deal a further blow to battered stocks and the economy, keeping expectations alive for a Bank of Japan rate cut.

But many players stayed on the sidelines ahead of key U.S. economic data due later in the day, including a January jobs report that could provide clues to whether the United States is headed for a recession.

"S&P's ratings announcement is causing fresh concern and giving support to JGBs at the moment," said Maki Shimizu, a JGB strategist at UBS Securities.

March 10-year futures 2JGBv1 rose 0.13 point to 137.88 and bounced towards a 28-month high of 139.15 struck last week as the Nikkei average .N225 eased 0.6 percent by midday after earlier gains.

The benchmark 10-year bond yield JP10YTN=JBTC edged down a basis point to 1.420 percent but stayed well above a 28-month low of 1.310 percent hit last week.

"Moves in the market remain dependent on Treasuries and stocks. But the market looks as if it is already in a wait-and-see mode without any big trading action this session," said Keiko Onogi, a senior JGB strategist at Daiwa Securities SMBC.

The five-year yield JP5YTN=JBTC dipped a basis point to 0.870 percent while the yield of the new two-year note JP2YTN=JBTC auctioned the previous day inched down a half basis point to 0.545 percent.

The two-year yield fell as far as 0.485 percent last week, a two-year low and below the BOJ's 0.5 percent overnight rate target, on growing expectations for a rate cut by the central bank this year.

But Thursday's weak result of a two-year bond auction showed investors were wary of buying up low-yielding JGBs as they remain largely doubtful of such monetary policy action. (Editing by Michael Watson)