JGB futures jump on gains in Treasuries, Nikkei drop
TOKYO, May 21 (Reuters) - Japanese government bond futures climbed on Wednesday boosted by gains in U.S. Treasuries and after Tokyo shares dropped on deepening concern about the impact of the slowing U.S. economy as oil prices hit record highs near $130 a barrel.
JGB futures extended their rebound from a seven-month low hit last week as investors became fearful that soaring oil prices will hit corporate profits and heighten the downside risks to the domestic economy, undermining firm exports.
Bank of Japan Governor Masaaki Shirakawa said on Tuesday that Japan's economic slowdown is becoming more evident, noting uncertainty over the global economy and soaring energy and raw material costs.[ID:nT37919]
Shirakawa's remarks matched expectations that the central bank will sit tight for some months before eventually raising rates.
On Tuesday, the BOJ left interest rates unchanged at 0.5 percent, as widely expected, by an unanimous vote.
"The theme of the market could shift back to the economic slowdown and credit crunch," Eiji Dohke, chief JGB strategist at UBS Securities, said in a note to clients.
June 10-year futures 2JGBv1 rose 0.37 point to 135.84 2JGBv1 after jumping as high as 136.09 early in the session. The lead contract pulled further away from a seven-month low of 134.28 hit last week.
Gains in JGBs could be limited, however, as many market players are still licking their wounds after weeks of severe volatility that have burnt investors ranging from big Japanese banks to hedge funds, prompting them to sell bad bets on any rise, traders said.
In the past two months, global equity markets have rebounded and government bonds have taken a hit on growing views that the worst of the credit crisis has passed.
The benchmark 10-year yield JP10YTN=JBTC dipped 3 basis points to 1.610 percent, well off a seven-month high of 1.710 percent hit on Friday.
The market is awaiting the Ministry of Finance's 600 billion yen ($5.8 billion) sale of 15-year floating rate JGBs later in the session.
The Nikkei share average .N225 was down 1.1 percent by mid-morning.
U.S. crude oil futures CLc1 held steady around 129 a barrel on Wednesday, after hitting a record $129.60 on Tuesday. [ID:nT121913] ($1=103.62 Yen) (Editing by Michael Watson)
