JGB futures slip from 1-mth high as stocks pick up
By Rika Otsuka
TOKYO, March 4 (Reuters) - Japanese government bond futures edged down on Tuesday, retreating from a one-month high hit the previous day as a rebound in stocks prompted investors to shift funds to equities.
Overall, activity was subdued as investors awaited the outcome of the Ministry of Finance's 1.9 trillion yen ($18 billion) auction of benchmark 10-year JGBs, the main focus for trade on Tuesday.
"The market should digest the new debt supply without much problem, although it could take two or three days to do so" due to the relatively low coupon, said Tetsuya Miura, a bond strategist at Shiko Securities.
The coupon was set at 1.4 percent, down from 1.5 percent last month and a level not seen since the Bank of Japan in March 2006 ended its super-loose monetary policy of flooding the banking system with funds to keep interest rates near zero.
"Once the market sees investor demand is not bad, more bond buying is likely to come in," Miura said.
March 10-year futures 2JGBv1 edged down 0.10 point to 138.60.
Traders said some dealers sold bonds in early trade to hedge against Tuesday's auction.
On Monday the lead futures contract touched 138.93, its highest since a 2-½ year peak of 138.94 hit on Jan. 23.
The lead contract fell as low as 136.89 last week, its lowest since late December.
The Nikkei share average .N225 was up 0.7 percent in morning trade after plunging 4.5 percent on Monday.
JGBs have risen sharply in the last week as expectations have grown that a downturn in the U.S. economy will hurt Japan and could prompt the BOJ to lower rates by the end of the year.
That view strengthened after the dollar on Monday hit a three-year low against the yen at 102.60 yen as investors grew more concerned about the chances of falls in Japanese exporters' profits, a key engine for the export-dependent Japanese economy.
The dollar was at 103.45 yen JPY=, little changed from Monday's late U.S. trade.
The BOJ has left rates at 0.5 percent for the past year, and interest rate futures are pricing in a roughly 55 percent chance of a rate cut later this year. A week ago the market was only factoring in around a 20 percent chance of such a move.
The 10-year yield was unchanged on the day at 1.340 percent JP10YTN=JBTC. It fell as low as 1.320 percent the previous day, its lowest since Jan. 23.
The two-year yield was flat at 0.525 percent JP2YTN=JBTC, a one-month low first hit on Monday.
The five-year yield edged up half a basis point to 0.810 percent JP5YTN=JBTC, remaining close to a one-month trough of 0.790 percent reached the previous day.
The 20-year yield rose 1 basis point to 2.005 percent JP20YTN=JBTC as some market players booked profits after it hit a three-month low of 1.985 percent on Monday.
Bond prices and yields move inversely. (Editing by Hugh Lawson)
