JGB futures rise on short-covering as stocks slide

By Satomi Noguchi

TOKYO, April 8 (Reuters) - Japanese government bond futures rose on Tuesday as some dealers rushed to cover short positions in the wake of an unexpected fall in Tokyo stocks.

Dealers had expected futures to follow a slide in U.S. Treasuries on optimism that the credit crisis is easing, but Tokyo shares .N225 fell 1 percent and forced them to change their initial bets.

Many investors added to their bond holdings after a large drop in U.S. payrolls and weak domestic business sentiment in data last week, suggesting growing risks of a further worsening in both the U.S. and Japanese economies.

"Dealers who had bet on a further fall in futures before the session have all been forced to buy back as stocks dropped," said a senior dealer at a Japanese bank.

June 10-year futures rose 0.31 point to 139.74 2JGBv1.

The benchmark 10-year JGB yield was down half a basis point at 1.335 percent JP10YTN=JBTC after falling to 1.325 percent as pension funds bought the maturity, traders said.

The Bank of Japan is widely expected to keep interest rates on hold at 0.5 percent at a two-day policy meeting starting on Tuesday.

The meeting will be chaired by an acting governor as the post has been left vacant due to political wrangling. [ID:nT48204]

Acting governor Masaaki Shirakawa has been nominated by the government to become permanent chief of the BOJ after the main opposition party signalled support for the idea.

The five-year yield dropped 3.5 basis points to 0.780 percent JP5YTN=JBTC, while the 20-year yield slipped half a basis point to 2.050 percent JP20YTN=JBTC.

Treasuries fell on Monday on a glimmer of optimism about the beleaguered banking sector after news that Washington Mutual WM.N was close to obtaining a $5 billion cash infusion that may soothe fears about its ability to meet capital requirements stemming from its mortgage losses.[ID:nN07475686] (Editing by Hugh Lawson)