JGB futures rise on short-covering as stocks slide
TOKYO, April 8 (Reuters) - Japanese government bond futures rose on Tuesday as some dealers rushed to cover short positions in the wake of an unexpected fall in Tokyo stocks.
Dealers had expected futures to follow a slide in U.S. Treasuries on optimism that the credit crisis is easing, but Tokyo shares [.T] fell 1 percent and forced them to change their initial bets.
Many investors added to their bond holdings after a large drop in U.S. payrolls and weak domestic business sentiment in data last week, suggesting growing risks of a further worsening in both the U.S. and Japanese economies.
"Dealers who had bet on a further fall in futures before the session have all been forced to buy back as stocks dropped," said a senior dealer at a Japanese bank.
June 10-year futures rose 0.32 point to 139.75 2JGBv1. They had fallen from a five-year high of 142.00 hit in March as the market gained stability and investors cautiously reversed positions built up amid the global market turmoil that forced overseas hedge funds to unwind bad bets on JGBs and interest rate swaps.
The benchmark 10-year JGB yield was down half a basis point at 1.335 percent JP10YTN=JBTC after falling to 1.325 percent as pension funds bought the maturity, traders said.
The five-year yield dropped 2.5 basis points to 0.790 percent JP5YTN=JBTC and touched as low as 0.780 percent on solid buying by Japanese banks.
The 20-year yield slipped 1.5 basis points to 2.040 percent JP20YTN=JBTC while the two-year yield was flat at 0.565 percent JP2YTN=JBTC.
The Bank of Japan is widely expected to keep interest rates on hold at 0.5 percent at a two-day policy meeting starting on Tuesday.
The meeting will be chaired by an acting governor as the post has been left vacant due to political wrangling. [ID:nT48204]
Acting governor Masaaki Shirakawa was nominated by the government on Monday to become permanent chief of the BOJ after the main opposition party signalled support for the idea.
Analysts said the focus of the policy meeting will be a possible discussion how much the BOJ might need to cut its economic forecast in a twice-yearly outlook report due out later this month.
"The Bank of Japan's view on the state of the Japanese economy will be a focus," said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities. He said the U.S. economy was now widely seen to be in a recession.
Martin Feldstein, president of the National Bureau of Economic Research, said on Monday he believes the economy has been sliding into a recession since December or January. The NBER is considered the arbiter of U.S. recessions. [ID:nN07476021]
Treasuries fell on Monday on a glimmer of optimism about the beleaguered banking sector after news that Washington Mutual (WM.N) was close to obtaining a $5 billion cash infusion that may soothe fears about its ability to meet capital requirements stemming from its mortgage losses.[ID:nN07475686] (Editing by Michael Watson)
