* Profit-taking keeps weighing on JGBs
* Euro-yen 3-mth rate futures at 8-mth low on funding stress
* Bargain hunters emerge after 10-yr JGB futures hit 4-mth
* Sentiment in JGB market worsens sharply to 3-wk low
By Akiko Takeda
TOKYO, Nov 28 Japanese government bonds
fell on Monday as a rise in yields on euro-zone debt pressures
investors to take profits from JGBs and prepare for expected
losses in risk assets.
But they recouped some losses as bargain hunters emerged in
cash bonds with maturities over 10 years after the benchmark
yield hit a three-month high.
"There aren't many alternatives other than JGBs when it
comes to sheltering money. When foreigners' position squaring
run its course, I expect more buyers to emerge," said a trader
at a Japanese bank.
December 10-year JGB futures fell a four-month low
of 141.71 in early morning trade but trimmed their losses. They
closed at 141.87, 0.42 point lower.
A Reuters weekly survey showed on Monday that sentiment in
the JGB market worsening sharply to the lowest in three weeks,
but the median forecast was for the 10-year JGB yield to go no
higher than 1.050 percent by the end of this week,
as market participants expect bargain hunting by cash-rich
investors at higher yields.
While the debt crisis in Europe has unnerved investors and
despite Japan's public debt burden being twice the size of its
GDP, many doubt JGBs will fall victim to the vicious cycle of
investors selling and further erosion of confidence witnessed in
the euro zone, because JGBs are mostly financed by domestic
"A poor German bond auction last week fuelled fears that the
euro-zone debt crisis could get out of control, and this is
still weighing on JGBs, but investors are just adjusting
positions ... I don't think their selling is based on a
perception that JGBs are falling into the same category as those
facing the debt mess in the euro zone," said a fund manager at
Japanese asset management firm.
The 10-year JGB yield was up 3 basis points
at 1.055 percent after hitting 1.065 percent, its highest since
Three-month euro-yen interest rate futures were down
0.5 basis point at 99.635, a fresh eight-month low as rates at
the short-end of yield curve could climb because London
interbank offered rates (LIBOR) are facing upward pressure on
euro zone woes.
JGBs' reaction was subdued after Moody's Investors Service
warned on Monday that the rapid escalation of the euro-zone
sovereign debt and banking crisis threatens the credit standing
of all European government bond ratings.
The Nikkei average climbed 1.6 percent on Monday as
strong U.S. retail sales over the Thanksgiving weekend and a
report that the International Monetary Fund was considering
support for Italy set off a wave of short-covering.
A report in Italian newspaper La Stampa suggested the IMF
was preparing a rescue plan worth up to 600 billion euros ($796
billion) for Italy, more than the fund can currently provide on
A source with knowledge of the matter told Reuters that
contact between the IMF and Rome had intensified but added it
was unclear what form of support could be offered if a market
sell-off on Monday forced immediate action. Official sources in
Rome said they were unaware of any request for assistance from