JGBs rise after Treasuries rally on jobless jump
TOKYO, June 9 (Reuters) - Japanese government bond futures rose sharply on Monday after U.S. Treasuries rallied late last week on news that the U.S. jobless rate posted its biggest one month jump in 22 years.
JGB futures rebounded after sliding on Friday, when the five-year JGB yield hit a 10-month high a day after the European Central Bank shocked markets by saying it may raise interest rates as soon as July.
JGBs have been hit by heavy selling in the past two months, and their weakness has been compounded in recent weeks as a surge in oil prices to record highs stokes concerns about inflation.
While worries about high oil prices and inflation will not disappear, concern about the U.S. economy's outlook could help JGBs rally over the next couple of months, said Hidenori Suezawa, chief strategist for Daiwa Securities SMBC.
"We could see a rebound in JGBs over the summer and a phase when bond yields fall due to the U.S. economy's uncertain outlook," Suezawa said, adding that the 10-year JGB yield could fall as low as 1.5 percent in the next two months.
June 10-year JGB futures rose 0.67 point to 135.02 2JGBv1, recovering much of the losses suffered on Friday, when they slid 0.88 point.
The 10-year JGB yield fell 6 basis points to 1.725 JP10YTN=JBTC.
The five-year JGB yield fell 6.5 basis points to 1.295 percent JP5YTN=JBTC, pulling further away from a 10-month high of 1.395 percent struck on Friday.
JGBs drew support from a fall in the benchmark Nikkei share average .N225, which by midday was down 2.1 percent.
The U.S. unemployment rate surged to 5.5 percent in May, its highest in more than 3-½ years, data released on Friday showed. The jump in the monthly jobless rate was the biggest in 22 years. [ID:nN06467327]
FIVE-YEAR AUCTION
The spike in the U.S. jobless rate helped trigger a rise in Treasuries, which also got a boost as a stock market sell-off deepened after crude oil spiked to new records around $139 per barrel. [US/]
Swap contracts on the overnight call rate show that investors see a roughly 15 percent chance of the Bank of Japan raising interest rates by 25 basis points to 0.75 percent by September, down from a roughly 20 percent probability seen on Friday. JPONIBOJ=TRDT.
The JGB market is still caught in a tug-of-war between concerns about downside risks to the U.S. and Japanese economies on the one hand and worries about inflation on the other, analysts said.
"Rather than see the focus shift totally toward concerns about the economy and see bond yields head lower, I think what we have now is a more balanced situation," said Tatsuo Ichikawa, fixed-income strategist for ABN AMRO Securities. Continued...
