TOKYO, May 20 Japanese government bond prices
began on a weaker footing on Monday, taking cues from signs of
improvement in both the U.S. and Japanese economies as well as
surging Japanese equities prices.
* Investors looked ahead to the Bank of Japan's two-day
policy meeting beginning on Tuesday, hoping the central bank
would make adjustments to its bond market operations and smooth
recent volatility. No major policy changes are expected.
* "There is a perception that the BOJ is still coming up
with the best way to conduct market operations under its massive
easing scheme, which is still very new. It will take some time
for markets to adjust," said a fixed-income fund manager at a
Japanese asset management firm.
* Japan's government upgraded its economic assessment in May
for the first time in two months, according to its monthly
report released on Monday, in a sign growth is accelerating as
exports and factory output pick up.
Japanese manufacturers' sentiment rose in May for a sixth
straight month and turned positive for the first time in a year,
a separate Reuters poll released on Monday showed.
* The Japanese indicators came on the heels of Friday's
Thomson Reuters/University of Michigan's preliminary reading on
U.S. consumer sentiment. The overall index rose to 83.7 from
76.4 in the previous month, coming in above economists'
expectations and reaching its highest level since July 2007.
The Dow and the S&P 500 finished at fresh record highs
after the report. Strong stocks and upbeat U.S. data undermines
the appeal of fixed-income assets, and also adds to speculation
the U.S. Federal Reserve might taper its bond-buying scheme if
the economic recovery continues.
* Also sapping demand for bonds, the Nikkei share average
surged to a fresh 5-1/2-year high on Monday.
* The yield on the 10-year cash bonds added
2.5 basis points to 0.825 percent. On Wednesday last week, it
touched a high of 0.920 percent, its loftiest peak since April
* The 10-year JGB futures contract ended morning
trade down 0.40 point at 142.29 after falling as low as 142.17.
* The five-year bond also fell, with its yield
adding 2 basis points to 0.385 percent, moving back toward a
two-year high of 0.455 percent on Wednesday last week.
* JGB market sentiment recovered into positive territory
ahead of this week's BOJ meeting, the latest weekly Thomson
Reuters poll showed on Monday.