JGB futures plunge, bargain hunting helps trim losses

By Satomi Noguchi

TOKYO, May 14 (Reuters) - Japanese government bond futures plunged to a seven-month low on Wednesday, dragged down by losses in U.S. Treasuries, before recovering somewhat as investors went bargain hunting.

Earlier in the session investors dumped JGBs after Treasuries fell on solid retail sales data which suggested that U.S. economic weakness might be less pronounced than some had thought, and after Federal Reserve officials sounded reluctant to cut interest rates further. [US/]

Banks also rushed to sell the government paper to avoid further damage to their books in a near repeat of sell-offs late last month when futures posted their biggest one-day loss in five years.

But some institutional investors such as life insurers picked up long-term bonds in afternoon trade as benchmark 10-year yields hit a seven-month high and helped futures to trim sharp losses.

"Tuesday's strong U.S. retail sales and views that the Fed may be more inclined to raise rates to tame inflation risks ignited selling in JGBs," said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities.

June 10-year JGB futures fell as much as 1.83 points at one point to 134.28, their lowest since mid-October, before recovering a tad to end the day at 134.97 2JGBv1, down 1.14 points.

On April 25, June futures suffered a hefty loss of 1.49 point in the regular trading session, the biggest for the lead contract since July 2003 as expectations for a BOJ interest rate cut receded, with some investors shifting their sights to an eventual rate rise.

The interest rate derivatives market showed that some investors were mulling a bigger chance of a Bank of Japan interest rate rise this year as views grew that the Fed would take a pause from lowering rates.