JGBs retreat on Treasuries, advancing Tokyo stocks
* Benchmark 10-year JGB yield hits 4-½ month high
* Supply concerns pressure JGBs, futures touch 5-mth low
* Nikkei jumps to 3-month high
By Shinichi Saoshiro
TOKYO, April 6 (Reuters) - Japanese government bond prices fell on Monday, with the benchmark 10-year yield hitting a 4-½ month high, tracking a sharp fall in U.S. Treasuries last week and weighed down by supply concerns.
Bonds were also hurt by prospects for a global economic recovery, reflected in the Nikkei average's .N225 rise to a three-month high.
"The JGB market reacted to the surge in Treasury yields and Japanese share prices," said Hidenori Suezawa, chief rates strategist at Daiwa Securities SMBC.
"The fact that North Korea's rocket launch is out of the way seems to have removed a lid from stocks, helping the Nikkei rally and pressuring bonds in turn," Suezawa said.
North Korea fired a long-range rocket on Sunday that flew over Japan towards the Pacific in what experts said was effectively a test of a ballistic missile designed to carry a warhead. [ID:nSEO21090]
Analysts said the effect of the launch on Japan's financial markets was limited since it was expected well in advance and neither the rocket nor debris hit Japan.
JGB prices have declined steadily this month, against some market participants' expectations that investors would start the new financial year from April 1 by allocating new funds to government bonds.
Demand for JGBs has not dried up but analysts say the recent advance in the stock market and concerns the Japanese government will increase debt issuance have stalled investor purchases, diverting some buyers to corporate bonds.
At a summit in London last week, the Group of 20 nations announced a $1.1 trillion deal to fight the global economic and financial crisis, with Japan agreeing to chip in.
The G20 decision helped improve global stock market sentiment while adding to supply concerns as the Japanese government already relies heavily on debt issuance for stimulus packages to help an economy in recession amid decreasing tax revenues.
"Stock market sentiment holds the key in deciding whether bonds will continue to drop on the strength of equities," Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Securities, said in a research note.
"And whether Japan's stock market can maintain its optimism will depend on developments of markets in the United States, the epicentre of the current crisis."
June 10-year JGB futures fell 0.32 point to 137.09 2JGBv1 after hitting 136.99, lowest since Nov. 10.
The five-year yield rose 2.5 basis points to 0.840 percent JP5YTN=JBTC.
The benchmark 10-year yield climbed 2 basis points to 1.435 percent after touching 1.440 percent JP10YTN=JBTC, its highest since Nov. 20.
The 20-year yield yield rose 3.5 basis points to 2.065 percent JP20YTN=JBTC.
The Nikkei gained 2.3 percent on Monday, buoyed by chances of a U.S. economic recovery and a weaker yen, which hit a six-month low against the dollar. [.T] [FRX/]
U.S. Treasuries fell sharply on Friday as investors looked beyond bleak employment data to focus on vast upcoming issuance and on hopes for some sort of moderation in the U.S. economy's retrenchment. [US/] (Editing by Michael Watson)
