JGBs stage broad rally as Nikkei suffers beating

TOKYO (Reuters) - Japanese government bond futures jumped to a one-month high on Friday, boosted as domestic stocks sank more than 4 percent to their lowest in a year and a half.

The yield on the benchmark 10-year JGB slipped to its lowest in a month while the two-year yield hit a 15-month low in the first trading session of the new year as bonds were also supported after U.S. Treasuries posted slight gains ahead of crucial employment data due later in the day.

"The focus is on the Nikkei today," said Akihiko Inoue, a market analyst at Mizuho investors Securities.

"People were trying to see how low they could push equities, and JGBs took their cue from that move."

March futures ended the morning session 0.51 point higher at 137.32, near 137.40 hit in earlier trade for the first time since December 5. Trading was limited to a half-day on Friday.

JGBs were boosted by a 4.03 percent tumble in the Nikkei average to 14,691.41, its lowest since July 2006, while a climb in oil prices to a record high of more than $100 a barrel on Thursday had prompted market participants to pick up bonds.

Short-term speculators and foreign players were seen as the main movers in Friday's market, where volume was thin with many domestic participants expected to return from new year holidays next week.

The 10-year yield slipped as much as 4 basis points to 1.460 percent, its lowest since early December.

The two-year yield fell 2 basis points to 0.685 percent, its lowest since October 2006, while the five-year yield bumped down 4 basis points to a one-month low of 0.965 percent and closed in on its lowest in nearly two years.

Three-month euroyen futures for June delivery rose as much as 2 basis points to 99.310, matching a 10-month high hit late in December.

JOBS DATA, AUCTION

Yields slipped broadly but analysts said a further significant fall in the 10-year yield was unlikely ahead of an auction in the maturity next week.

"The 10-year yield should stay around current levels because investors want to maintain a 1.5 percent coupon (at the auction)," said Tatsuo Ichikawa, a JGB strategist at ABN AMRO Securities.

Market participants are expecting a 1.5 percent coupon, which would match an offer last month, the lowest since January 2006.

JGBs rose after U.S. Treasuries mostly gained on Thursday as investors anticipated that weak U.S. jobs data will indicate that the U.S. economy is continuing to slow, boosting the argument for the Federal Reserve to continue lowering interest rates. Data on U.S. non-farm payrolls due at 1330 GMT is expected to show a gain of 70,000 jobs in December, following a 94,000 rise in November, while the unemployment rate is seen hitting its highest in more than a year.

Analysts said investors have factored in a low figure, which may also cap further JGB gains early next week when trade will begin in earnest.

(Reporting by Naomi Tajitsu, Editing by Michael Watson)