* Ten-year yield reverses early rise as Chinese stocks
* JGB 20- and 30-year yields off one-month high
* Investors still wary of sharp rise in U.S. Treasury yields
By Dominic Lau
TOKYO, June 25 Japanese government bond prices
rose on Tuesday, driven by concerns that a Chinese central bank
engineered cash squeeze to rein in rapid credit expansion could
derail growth in China, a major export market for Japan.
The 10-year yield slipped 1.5 basis points to
0.865 percent, reversing early gains after Chinese stocks fell
sharply, with the Shanghai and Shenzhen composite index
down 2.7 percent after earlier plunging as much as 6.8
percent. The China concerns weighed on Tokyo's Nikkei share
average, which ended down 0.7 percent on Tuesday.
Earlier in the session, the benchmark JGB yield rose as much
as 0.890 percent, matching a two-week high touched on Friday, as
investors remained wary of tumbling U.S. Treasuries after last
week's confirmation by Federal Reserve Chairman Ben Bernanke
that the U.S. central bank plans to cut back on its stimulus.
The 10-year yield has been trading within a 0.80-0.90
percent range over the past three weeks, steadying from the
volatility that has buffeted trade soon after the Bank of Japan
stunned financial markets with a massive stimulus programme on
"Obviously, JGBs just follow the outside factors. JGB market
itself doesn't have any strong direction," said a fixed-income
fund manager at a Japanese asset management firm in Tokyo.
"The downside is the Treasury market. The other side is from
the Chinese stock market. I am not sure going forward which is
the stronger" force, he said, adding that many investors were
hugging the sidelines.
Ten-year JGB futures added 0.09 point to 142.24,
with 28,523 contracts changing hands, sharply below this year's
daily average of 34,206 contracts.
Tadashi Matsukawa, head of Japan fixed income at PineBridge
Investments, said the JGBs and U.S. Treasuries were expected to
decouple given that the Fed was likely to taper off its $85
billion a month bond-buying programme, while the Japanese
central bank was supporting JGBs with its asset purchases.
"Logically, JGBs should outperform U.S. Treasuries," he
The 20-year yield eased 4.5 basis points to
1.730 percent, off a four-week high, while the 30-year yield
was down 2.5 basis points at 1.875 percent, also
coming off a one-month high hit on Monday.
BOJ Deputy Governor Kikuo Iwata ruled out using its policy
ammunition to deal with temporary market turbulence, signalling
that it would take a long-term decline in price expectations for
him to consider additional monetary easing.
But if the central bank were to boost asset purchases in the
future he would favour government bonds over risk assets, given
the huge size of the JGB market.