TOKYO, Aug 2 (Reuters) - Japanese government bonds took their cue from sagging U.S. debt prices, with the benchmark JGB yield rising on Friday to a 2-1/2 week high.
* U.S. Treasuries prices fell on Thursday, pushing benchmark yields close to two-year highs as encouraging readings on jobs and factory activity supported the view the U.S. Federal Reserve will taper its bond purchases sooner rather than later.
* Bank of Japan operations provided some support for JGB prices. In regular operations under its massive easing scheme, the BOJ offered to buy outright 450 billion yen ($4.54 billion) of JGBs with residual maturity of five to 10 years, and another 110 billion yen of JGBs with up to one year left to maturity.
* “BOJ operations are propping up supply and demand conditions, but there is a feeling that many investors are waiting for the next big trading factor before they step in to buy,” said a fixed-income fund manager at a European asset management firm in Tokyo.
* Later on Friday, the key U.S. nonfarm payrolls report for July is expected to a rise in hiring of 184,000, while the unemployment rate likely dipped to 7.5 percent last month from 7.6 percent.
An upside surprise could prompt the U.S. central bank to begin reducing the $85 billion of assets it buys each month, perhaps as early as its September 17-18 meeting.
* The 10-year JGB yield rose 3.5 basis points to 0.825 percent, its highest since July 17.
The benchmark yield dropped as low as 0.770 percent last week, which was its lowest since May 14.
* “Everyone expects the market to sell off and get to between 0.850 percent and 0.950 percent, and then they want to buy,” said a fixed-income strategist at a large Japanese brokerage.
“Either they’re hoping for a sell-off to buy, or they’re hoping for a sell-off because they’re positioned for one. But normally when everyone starts to expect something, it doesn’t happen,” he added.
* The 10-year JGB futures contract ended morning trade down 0.39 point at 143.22 after dropping as low as 143.18, its lowest since July 17.
* The 5-year yield rose 3 basis points to 0.315 percent, its highest since July 10.
* The 30-year yield added 2 basis points to a one-week high of 1.830 percent, moving away from a 6-week low of 1.800 percent touched on Wednesday.
The 20-year yield rose 2 basis points to a one-week high of 1.720 percent, moving away from Wednesday’s nearly 5-week low of 1.695 percent.
* The yield curve flattened, with the 10-year yield’s spread to 20-year yields shrinking to 89.5 basis points from a four-month high of 94.5 basis points hit on July 24. The 10-year yield spread to 30-year debt shrank to 100.5 basis points from rose to a four-month high of 108 basis points on July 24.
* Concerns that a planned national sales tax increase might be delayed or watered down would weigh on JGB market sentiment.
Economists polled by Reuters said the Japanese economy could withstand a planned sales tax increase even if growth slows from the first quarter’s healthy pace, with 14 of the 15 respondents saying the government should go ahead as planned with the first stage of raising the 5 percent tax to 8 percent in April.