TOKYO, July 19: Japanese government bond futures rose to a 5-1/2-week high on Friday as stock prices skidded ahead of Japan’s upper house election on Sunday, though cash bond trading was subdued.
Cash bonds slipped slightly across the yield curve, with the benchmark yield creeping away from a five-week low touched in the previous session.
Ten-year JGB futures finished up 0.06 point at 143.44, after earlier touching 143.49, their highest since June 10. Volume was thin at 17,560 contracts, coming in below 20,000 contracts for the fifth straight session.
The Nikkei stock average slid 1.5 percent, reversing early gains of more than 1 percent that brought it to a two-month peak, as some investors took profits before this weekend’s Japanese election.
Prime Minister Shinzo Abe’s ruling bloc is expected to fare well in the election, which would hand him more power to pursue his aggressively reflationary policies, aimed at stoking two percent inflation in two years.
Weekly capital flow data from the Ministry of Finance showed Japanese investors were net buyers of foreign bonds for a second straight week last week by purchasing the largest amount since September 2012.
Should the trend towards net buying continue, it could provide another piece of early evidence that Abe’s expansionary stimulus policies are having their desired effect.
‘I think a lot of the banks have started to buy U.S. Treasuries or German Bunds because yields have gone up a lot, but I don’t think life insurance companies have really changed their game plan so much,’ said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.
The benchmark 10-year yield inched up half a basis point to 0.805 percent, moving away from a five-week low of 0.800 percent touched late in the previous session.
The benchmark yield finished last week at 0.815 percent, and has mostly traded in a range between 0.80 percent and 0.90 percent since late May.
JGBs took their cues from U.S. Debt prices, which fell on Thursday as upbeat data on jobless claims and factory activity supported the view the economy may be strong enough for the Fed to pare bond purchases sooner rather than later.
U.S. Federal Reserve chief Ben Bernanke told the Senate Banking Committee on Thursday it was too soon to judge if recent ‘mixed’ signals from the U.S. Economy would prompt the central bank to delay plans to trim its bond buying this year.
The five-year yield was flat at a five-week low of 0.285 percent hit in the previous session.
The superlong zone also dropped, though late bargain-hunting brought prices off their early troughs. The 30-year yield rose half a basis point to 1.835 percent after earlier rising as high as 1.850 percent, while the 20-year yield added 1 basis point to 1.720 percent, off an earlier high of 1.725 percent.
(AGENCIES)
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