JGBs rise on Treasuries, weak industrial output data
TOKYO, April 30 (Reuters) - Japanese government bonds rose on Wednesday, supported by weak industrial output data and the previous day's rise in U.S. Treasuries, getting some respite after a recent sell-off.
June 10-year JGB futures rose by as much as 0.48 point from Monday's close as traders returned after taking Tuesday off for a Japanese holiday.
Data showing that Japan's industrial output fell by a worse-than-expected 3.1 percent in March from a month earlier lent support to JGBs, market players said. [JPIP1=ECI]
JGBs also got a lift after U.S. Treasuries rose on Tuesday due to bleak data on consumer confidence and the housing sector. "It seems like the pullback in JGBs that took place on Monday and last Friday may be over," said Mari Iwashita, a senior strategist in Daiwa Securities SMBC's fixed-income research department.
Given the moves in U.S. financial markets on Tuesday and lingering worries about the fallout from credit market turmoil it may be hard to keep selling JGBs aggressively, Iwashita said.
After trimming some of their gains, JGB futures finished morning trade 0.33 point higher at 135.93 2JGBv1.
JGB futures had suffered their biggest sell-off in five years on Friday, a move that triggered a brief halt in trading.
The benchmark 10-year JGB yield slipped 1 basis point to 1.610 percent JP10YTN=JBTC, having come off a six-month high of 1.675 percent hit on Monday.
The medium-term sector outperformed, with the five-year yield falling 5 basis points to 1.180 percent JP5YTN=JBTC.
MONETARY POLICY OUTLOOK
Yields at the short end of the curve declined as the lead three-month euroyen futures contract rose 6 basis points to 98.965 JEYv1.
Investors probably feel that the sell-off in euroyen futures last Friday to a nine-month low of 98.875 had been a bit excessive, said a trader for a European bank.
"I think market expectations toward a BOJ rate rise by year-end will retreat and that views will shift toward no BOJ rate rise this year," the trader said.
Swap contracts on the overnight call rate showed that investors see a roughly 60 to 65 percent chance of the Bank of Japan raising rates by year-end, down slightly from 70 percent on Monday.
Some market players said JGBs could draw support due to the potential for month-end buying by passive-style investors who try to keep up with moves in benchmark bond market indexes.
But any gains in JGBs were seen likely to be limited by caution ahead of monetary policy decisions by the BOJ and the U.S. Federal Reserve on Wednesday.
The BOJ is widely expected to keep rates unchanged at 0.5 percent but is expected to downgrade its view of the economic outlook in its half-yearly economic report. [ID:nSP320796]
The Fed is seen likely to cut rates by 25 basis points to 2 percent, and investors are focusing on the post-meeting statement to gauge how near the U.S. central bank may be to taking a pause from lowering rates.
(Editing by Brent Kininmont)
