JGB futures hit 1-mth low as Nikkei jumps, G7 eyed
By Rika Otsuka
TOKYO, April 11 (Reuters) - Japanese government bond futures plunged to a one-month low on Friday, tracking an overnight slide in U.S. Treasuries, while a 2.1 percent jump in the Nikkei share average prompted investors to dump safe-haven government debt.
Some investors shed long bond positions before a meeting of Group of Seven finance leaders starts later in the day in Washington, just in case the world's economic powers unveil new steps to ease the global credit crisis.
"Hedge funds are unwinding long positions in JGBs to avert risks of G7 financial authorities introducing quick and effective steps to help solve the credit crisis," said a senior trader at a European investment bank.
"But the market is not really expecting any measures that will relax the credit tightness from the meeting," he said.
G7 finance ministers and central bankers are likely to deploy an international team to keep closer tabs on the world's big banks and demand better risk management and information disclosure across financial markets. [ID:nL09727960]
June 10-year futures dropped 0.84 point to 139.24 2JGBv1 after falling as low as 139.16, the lowest since mid-March.
The benchmark 10-year JGB yield rose 4.5 basis points to 1.375 percent JP10YTN=JBTC, after touching a one-month high of 1.380 percent first hit last week.
The Nikkei share average .N225 was up 2.1 percent .N225 at 13,218.28 by midday.
Investors were also reluctant to pick up JGBs after the appointment of new Bank of Japan Governor Masaaki Shirakawa earlier this week cooled expectations that the central bank might cut interest rates later this year.
"It's no surprise to see JGBs suffering as rate cut speculation has shrunk before the G7 meeting," said Mari Iwashita, senior market economist at Daiwa Securities SMBC.
The market now expects the BOJ to stand pat for a while given Shirakawa's reputation that he pays deep respect to economic fundamentals in policy-making, while he is unlikely to yield to any external pressure.
Swap contracts on the overnight call rate show the implied chance of a BOJ rate cut by the year-end is roughly 30 percent JPONIBOJ=TRDT, down from around 55 percent a week ago.
The central bank on Wednesday left the benchmark overnight call rate unchanged at 0.5 percent.
The two-year yield edged up 1 basis point to 0.605 percent JP2YTN=JBTC, while the five-year yield climbed 4 basis points to 0.845 percent.
The 20-year yield rose 3 basis points to 2.105 percent JP20YTN=JBTC and the 30-year yield was up 2.5 basis points at 2.420 percent JP30YTN=JBTC.
BOJ data showed on Friday that Japanese wholesale prices rose a more-than-expected 3.9 percent in March from a year earlier, further evidence that companies' profits are being squeezed in the face of rising oil and other raw materials prices. [JPCGPY=ECI]
Still, the JGB market was little moved by the data.
Treasuries fell on Thursday as traders favoured stocks over government bonds after a handful of upbeat earnings forecasts overshadowed the gloomy outlook for the U.S. economy. (Editing by Chris Gallagher)
