(Corrects dollar's high in second paragraph.)
* 10-yr futures drop, move away from Friday's 6-week high
* Long-only investors should buy 10-yr cash note at 0.8
* Superlongs supported by expectations of duration extension
By Lisa Twaronite
TOKYO, Jan 28 Japanese government bonds started
the week with a softer tone on Monday, with the benchmark yield
moving away from a six-week low after the yen dipped and U.S.
Treasury yields rose.
Early on Monday, the dollar touched a fresh 2-1/2-year high
of 91.26 yen. U.S. Treasuries yields surged to their
highest in three weeks on Friday after data showed European
banks are repaying more emergency loans than expected.
The benchmark 10-year JGB futures contract ended
down 0.25 point at 144.30, moving away from Friday's intraday
high of 144.58, its highest level since Dec. 13.
"Last week, we had a pretty solid 10-year JGB market, but I
think there was a lot of profit-taking today in light of the
weak Treasuries on Friday, and that may have caught some people
by surprise," said Tadashi Matsukawa, head of fixed income at
Pinebridge Investments in Tokyo.
Minutes from the Federal Reserve's January meeting will be
released on Wednesday and investors will be on alert for any
signal that the U.S. central bank is mulling an "exit strategy"
to its bond buying, Matsukawa said.
The 10-year JGB yield rose 2.5 basis points
to 0.745 percent. On Friday, it slumped to 0.720 percent, its
lowest since Dec. 14.
"We advise long-only investors to wait for dip buying to
around 0.8 percent," said strategists at RBS Securities Japan,
in a note to clients on Monday.
The yield curve is likely to reverse course from last week
with bear steepening up to the 10-year level and bear flattening
in the sectors over 10 years, they said.
A brighter economic view also undermined demand for
Japan's economy will likely grow 2.5 percent in the fiscal
year starting in April, the government said on Monday, as Prime
Minister Shinzo Abe's ambitious fiscal and monetary policies
boost domestic demand and a rebounding overseas economy helps
The government's projection for real gross domestic product
is roughly in line with the Bank of Japan's estimate issued last
week, but it is stronger than the median estimate for 1.8
percent growth in a Reuters poll.
The recently battered superlong zone fared better than other
JGB tenors. While longer maturities have underperformed due to
concerns that government's aggressive reflationary policies will
eventually lead to inflation, market participants say that
month-end buying could emerge this week. Some funds buy
longer-dated debt to extend the duration of their portfolios.
The 20-year yield added half a basis point to
1.775 percent, while the 30-year bond yield was
flat at 1.995 percent, after earlier rising as high as 2.0
"There seems to be some dip-buying whenever the 30-year
yield rises above 2.0 percent," said a fixed-income fund manager
at a Japanese trust bank in Tokyo.
The five-year yield added 1 basis point to
0.155 percent. Last week, it fell as low as 0.140 percent, its
lowest recorded level since Japan started issuing 5-year notes
in 2000, in the wake of the Bank of Japan's decision to double
its inflation target to 2 percent and make an open-ended
commitment to buying assets from next year.
A weekly gauge of sentiment in the Japanese government bond
market improved but remained solidly in negative territory for a
fourth straight period, the latest Reuters poll showed on
(Reporting by Lisa Twaronite; Editing by Kim Coghill)