JGB futures approach one-month high on weak data
TOKYO, March 5 (Reuters) - Japanese government bond futures rose on Wednesday, nearing a one-month high after weak figures on spending by Japanese companies stirred worries about the domestic economic outlook and prompted investors to buy government debt.
A Ministry of Finance survey showed Japanese companies reduced spending on plant and equipment by 7.7 percent in October-December from the same quarter a year earlier, the biggest drop since 2002 and much more than an expected decline of 2.0 percent. [ID:nTKU003074]
The weak capital spending figures hurt Tokyo stocks and pointed to a sharp downward revision in growth figures for the same quarter due next week, supporting buying of government bonds, analysts said.[ID:nT231998]
"The headline figures on the survey showed a much bigger decline in corporate spending than expected, and that pushed market players back towards buying bonds," said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities.
March 10-year futures 2JGBv1 rose 0.21 point to 138.65, rebounding towards a one-month high of 138.93 hit on Monday.
JGBs had rallied in the past week on growing expectations that a downturn in the U.S. economy will hurt Japan and could prompt the BOJ to lower interest rates by the end of the year.
That view had strengthened after the dollar hit a three-year low against the yen earlier this week as investors grew more concerned about the chance of falls in profits at exporters, an engine for the Japanese economy.
The lead futures contract at one stage earlier this week had rebounded more than 2 points from 136.89 struck last week, the lowest since late December.
The yield of the new benchmark 10-year note auctioned the previous day was down a basis point at 1.385 percent JP10YTN=JBTC, staying in sight of a one-month low of 1.320 percent touched on Monday.
The five-year yield fell 2 basis points to 0.810 percent JP5YTN=JBTC, towards a one-month trough of 0.790 percent hit on Monday.
Eiji Dohke, chief JGB strategist at UBS Securities, said in a research note that the BOJ could downgrade its view on the domestic economy in an outlook report due to be issued in April and even cut interest rates in May or June if the yen surges further against the dollar.
"The selling target for the five-year yield is 0.70 percent, and 1.25 percent for the 10-year yield," said Dohke, who advised investors to keep their holdings of 10-year JGBs for now.
The two-year yield fell 1.5 basis points to 0.535 percent JP2YTN=JBTC, near a one-month low of 0.525 percent first hit earlier this week.
The 20-year yield edged up half a basis point to 2.025 percent JP20YTN=JBTC, but remained in sight of a three-month low of 1.985 percent struck on Monday.
Bond prices and yields move inversely.
The Nikkei share average .N225 was down 0.2 percent at midday while the dollar was steady around 103.35 JPY=, remaining near a three-year low of 102.60 yen hit on Monday.
The BOJ has left rates at 0.5 percent for the past year, and interest rate futures are pricing in a roughly 50 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.
Fears over more fallout from the credit crunch lingered, adding to the safe-haven appeal of bonds after Federal Reserve Chairman Ben Bernanke warned that mortgage delinquencies and foreclosures would likely rise.
But analysts said gains in JGBs could be limited this session after Treasuries fell on Tuesday, hurt by a report that U.S. bond insurer Ambac Financial Group is moving closer to a bail-out. (Editing by Chris Gallagher)
