JGB futures dip on stock gain, pre-auction caution

By Chikako Mogi

TOKYO, Feb 4 (Reuters) - Japanese government bonds fell on Monday as a jump in Tokyo shares spurred selling of safe-haven government debt.

News last week of the first U.S. labour market contraction in 4-½ years renewed concerns about a recession, but that was overshadowed by reports that a group of banks were mulling a rescue measure for big bond insurers, said Tatsuo Ichikawa, chief JGB strategist at ABN AMRO.

"Stocks' gains are hurting JGBs," Ichikawa said. "Concerns about the 10-year auction tomorrow are also putting upward pressure on yields."

The Ministry of Finance will offer 1.9 trillion yen ($17.8 billion) of 10-year JGBs on Tuesday, and Monday's rise in yields suggests the coupon will remain at 1.5 percent, traders said. The auction will be followed by a 500 billion yen sale of 10-year consumer price index-linked bonds on Thursday.

Market players expect U.S. growth to slow significantly, but views are mixed on whether the economy will fall into a deep recession, as well as on the timing and depth of the stimulus effects from U.S. monetary and fiscal measures, keeping investors wary of taking large positions.

"Price and yield moves appear to be sharp, but they are not really accompanied by volume, and yields remain in a narrow range," said Atsushi Ito, a JGB strategist at Morgan Stanley.

March 10-year futures 2JGBv1 fell 0.51 point to 137.35, just above an intraday low of 137.30 and closing in on a one-month low.

The Nikkei share average .N225 was up 2.5 percent.