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 [.T] 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 0.32 point to 139.75 2JGBv1. They had fallen from a five-year high of 142.00 hit in March as the market gained stability and investors cautiously reversed positions built up amid the global market turmoil that forced overseas hedge funds to unwind bad bets on JGBs and interest rate swaps.

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 five-year yield dropped 2.5 basis points to 0.790 percent <JP5YTN=JBTC> and touched as low as 0.780 percent on solid buying by Japanese banks.

The 20-year yield slipped 1.5 basis points to 2.040 percent <JP20YTN=JBTC> while the two-year yield was flat at 0.565 percent <JP2YTN=JBTC>.