JGB futures hit 2-1/2-yr high, BOJ and US data eyed
By Rika Otsuka
TOKYO, March 6 (Reuters) - Japanese government bond futures struck a 2-1/2-year high on Thursday, as investors covered short positions in the lead contract before its expiry next week.
March 10-year futures 2JGBv1 rose as high as 138.98, their highest since September 2005, with hedge funds seen buying back short futures positions as they were force to unwind their yield-curve-flattening positions, traders said. The lead contract will expire on March 11.
"The fall in the JGB market was very limited, even with the Nikkei's rise this morning. That seemed to force hedge funds to unwind their positions and sent the futures higher," a senior trader at a Japanese bank said.
But trading activity was light overall as many players stayed on the sidelines, with a batch of important economic events taking place in Japan and overseas in the next two days.
The Bank of Japan starts a two-day policy meeting on Thursday at which it is widely expected to leave monetary policy unchanged. BOJ Governor Toshihiko Fukui, who will retire on March 19, is due to give his last post-meeting news conference on Friday.
The BOJ has left rates at 0.5 percent for the past year.
Investors awaited the U.S. government's monthly employment report on Friday for a clue on how aggressively the Federal Reserve will cut interest rates later this month.
The lead March futures contract climbed 0.12 point to 138.86.
The benchmark 10-year yield JP10YTN=JBTC was unchanged on the day at 1.370 percent.
The 20-year yield JP20YTN=JBTC edged up 1 basis point to 2.035 percent, while the 30-year yield JP30YTN=JBTC rose 2.5 basis points to 2.310 percent.
The two-year yield JP2YTN=JBTC slid 0.5 basis point to 0.530 percent, and the five-year yield JP5YTN=JBTC dropped 2 basis points to 0.780 percent.
The yield curve steepened as a result.
JGBs had risen sharply in the past week as expectations have grown that a downturn in the U.S. economy will slow the Japanese economy and may prompt the BOJ to cut rates later this year.
Government data showed on Wednesday that Japanese firms' capital spending fell a more-than-expected 7.7 percent in the fourth quarter from a year earlier, the biggest drop since 2002, prompting economists to revise down growth forecasts for the quarter.
A Reuters poll showed on Wednesday that forecasts for revised October-December gross domestic product figures by 21 economist centred on growth of 0.6 percent from the previous quarter, or an annual pace of 2.3 percent.
That compared with initial readings of real growth of 0.9 percent or 3.7 percent annualised, adding to pessimistic views about Japan's growth prospects for the coming quarters. [ID:nT248831] (Editing by Mike Miller)
