JGB futures edge higher as investors hunt bargains

By Rika Otsuka

TOKYO, Dec 26 (Reuters) - Japanese government bond futures rose on Wednesday as investors hunted for bargains after a three-day slide, while minutes from the Bank of Japan's November meeting showed policy board members noted rising downside risks in the U.S. economy.

Several BOJ policy board members said downside risks in the world's biggest economy were heightening, with one member saying it could worsen more than expected on further adjustment in the housing sector, according to minutes of the central bank's Nov. 12-13 meetting released on Wednesday. [ID:nTKU002944]

But gains in JGBs were limited as trade was thin ahead of the year-end.

Higher share prices also kept investors careful about buying bonds too aggressively, traders said. By midday, Tokyo's Nikkei share average .N225 was up 0.2 percent at 15,584, after jumping 1.9 percent the previous day.

"The minutes tell that the BOJ was already very concerned about the U.S. economy then, providing an excuse for those who wanted to pick up JGBs after a recent slide," said Tetsuya Miura, bond strategist at Shinko Securities.

March 10-year JGB futures rose 0.21 point to 136.26 2JGBv1. The lead contract hit a two-week low of 136.05 on Tuesday after rising as high as 137.14 last week, the highest since Dec. 5. Volume was light at 9,736 lots.

The benchmark 10-year yield fell 1.5 basis points to 1.565 percent JP10YTN=JBTC.

The two-year yield dipped 0.5 basis point to 0.735 percent JP2YTN=JBTC, while the five-year yield was down 1 basis point to 1.065 percent JP5YTN=JBTC.

JGBs have been supported over the past few months as market players have pushed back their expectations on the possible timing of a BOJ interest rate rise from the current 0.5 percent.

Many now expect the BOJ to wait to raise rates until the third quarter of next year because of turmoil in global credit markets and signs of an economic slowdown in Japan. [BOJ/INT] (Editing by Mike Miller)