JGBs dip with Treasuries before US payrolls data
TOKYO, Oct 4 (Reuters) - Japanese government bonds dipped on Thursday, mimicking a drop in Treasuries after data showing signs of an improvement in the U.S. labour market stoked expectations for an upbeat payrolls report on Friday.
Activity has been lacklustre this week as investors stick to the sidelines before the U.S. payrolls data to gauge how much more the Federal Reserve could cut interest rates and the potential impact on the Bank of Japan.
December 10-year futures 2JGBv1 fell 0.18 point to 134.72, slipping back towards a six-week low of 134.32 struck last week.
"Investors haven't really set their near-term trading strategies and are waiting for the payrolls data," said Maki Shimizu, an interest-rate strategist at UBS.
"If the data is strong, the BOJ could be confident about policy normalisation, not this month but before year-end," she said.
BOJ Deputy Governor Kazumasa Iwata struck a cautious note in a speech to business leaders in southwestern Japan, saying that the central bank needs to closely examine risks to the outlook and that there was a heightened risk of a U.S. slowdown. [ID:nTKV002906]
Iwata will also hold a news conference at 0500 GMT.
Iwata, seen as cautious about normalising monetary policy, voted against the BOJ's decision to last raise rates to 0.5 percent in February, later saying he opposed the move due to uncertainty on the consumer price outlook.
The BOJ is widely seen keeping rates on hold for the next month or two but possibly raising them as soon as December. A raft of data in the past week showed the economy posting steady growth even as core consumer prices are stuck near zero.
The benchmark 10-year yield JP10YTN=JBTC edged up 1.5 basis points to 1.705 percent. The two-year yield JP2YTN=JBTC rose a basis point to 0.865 percent, while the 20-year yield JP20YTN=JBTC drifted up a basis point to 2.205 percent.
On the supply front, the Ministry of Finance was selling 500 billion yen ($4.3 billion) of 10-year inflation-linked bonds during the session. Results of the sale are due at 0345 GMT.
Treasuries dipped overnight after a rebound in the employment index of the Institute for Supply Management's survey of service sector activity, and the ADP private employment report showed a pick-up in hiring.
The September payrolls report is forecast to show an increase of nearly 100,000 after employers cut 4,000 jobs in August, the first decline in four years. Any signs of strength could cool expectations for another near-term Federal Reserve rate cut.
The Fed slashed rates by an aggressive half-point last month to forestall any fallout on the broader economy from the housing and credit market troubles. Analysts said they expected some investor demand with any rise in the 10-year yield above 1.700 percent, at least until the market gets more clarity on how soon the BOJ could bump up overnight rates to 0.75 percent from 0.5 percent.
Some portfolio managers have been allocating funds to JGBs this week, the start of the second half of the fiscal year.
Asahi Mutual Life, the No. 7 life insurer with more than 6 trillion yen ($50 billion) of assets, told Reuters in an interview on Wednesday that it would look to buy JGBs on any rise in 10-year yields to near 1.8 percent. [ID:nT140582]
Asahi Mutual said it had sold yen bonds and shifted funds into foreign bonds as JGBs rallied in the past few months and pushed the 10-year yield to a 19-month low of 1.500 percent in September.
