JGB futures up on weak economic outlook, auction eyed

By Satomi Noguchi

TOKYO, April 10 (Reuters) - Japanese government bond futures rose on Thursday helped by gains in U.S. Treasuries, while a fall in Tokyo stocks kept the safe-haven appeal of debt intact.

Bonds were supported after weak machinery orders data confirmed the view that the nation's business sentiment is deteriorating, and underlined the Bank of Japan's view that the world's second-largest economy was slowing.

The BOJ dropped a reference to the economy expanding in a monthly report on Wednesday, a phrase it had used for nearly two years, after it left interest rates unchanged. [ID:nT209700]

An auction of five-year JGBs on Thursday is expected to draw solid demand, giving a boost to medium-term notes.

"The market is returning to a cautious mode ahead of earnings reports coming soon from U.S. investment banks, thinking that the stability we saw in recent sessions will be short-lived again," said Maki Shimizu, a strategist at UBS Securities Japan.

June 10-year futures rose 0.22 point to 139.94 2JGBv1, after reaching as high as 140.15 as Tokyo's Nikkei share average fell 0.6 percent .N225 and prompted investors to cover short positions in futures.

The benchmark 10-year JGB yield was flat at 1.340 percent JP10YTN=JBTC after falling as low as 1.325 percent, staying in a range near a one-month high of 1.380 percent hit last week.

The Ministry of Finance offered 1.9 trillion yen ($18.7 billion) of five-year notes in a reopening of the current No. 70 issue. The amount of the offer was reduced by 100 billion yen from the previous auction last month while the coupon was set at 0.8 percent, unchanged from March.

The yield of the current No. 70 five-year bond was flat at 0.815 percent JP5YTN=JBTC but fell as low as 0.790 percent, in a sign that the auction for the maturity is likely to meet solid demand from Japanese banks, traders said.

The two-year yield was up 1.5 basis points at 0.600 percent JP2YTN=JBTC.

Japan's core private-sector machinery orders fell 12.7 percent in February from the previous month, compared with economists' forecast for a 14.0 percent fall. [ID:nTKF003068]

Treasuries gained on Wednesday as recession fears and a bleak corporate profit outlook hurt the stock market and stoked demand for comparatively safe assets such as government bonds.

A report that Merrill Lynch & Co MER.N executives expect the company to record first-quarter write-downs of around $6 billion to $6.5 billion renewed jitters about the credit crisis before a slew of U.S. financial firms' earnings reports due next week.[ID:nWEN4858][RESF/US] (Editing by Chris Gallagher)