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JGBs close higher on bargain-hunting

TOKYO: Key March 10-year Japanese government bond (JGBs) futures ended higher for the first time this week on Friday, encouraged by investor bargain-hunting in cash bonds as the key yield neared 1.9 percent.

A retracement in Tokyo shares, after the key Nikkei average briefly rose above 20,000 for the first time in 30 months, also supported buybacks.

Early on, bond market sentiment weakened as March futures slid to a low of 131.65 on large-lot selling by US funds apparently taking profits to cover losses on US Treasuries, market sources said.

The rumours about massive losses at US hedge funds and financial institutions have stemmed from a sharp decline in the US 30-year bond yield, which has edged well below those of shorter-term bonds and notes.

Key March JGB futures: ended Friday trade at 132.55, up 0.38 point from Thursday.

The yield on the 220th cash bond stood at 1.810 percent, down 0.04 from Thursday's close. The bond market is unmoved so far, but a rumour circulated that major US investment bank may sell financing bills to offset losses from US Treasuries.

"Losses earlier this week may have a lot to do with hedge funds, but I don't have much idea how much impact it actually has (on the JGB market)," said a dealer at a Japanese major city bank.

Traders said buying in long-term bonds and unloading of medium-term bonds were evident on Friday, as medium-term issues such as five-year bonds appeared expensive for investors.

Bargain-hunting was detected by investors, including pension funds, in the 219th 10-year cash bonds, traders said.

Yuuki Sakurai, deputy general manager at Fukoku Mutual Life Insurance, said: "I've been waiting to buy 10-year bonds when the yield is close to 1.9 percent."

The Bank of Japan's (BOJ) lone monetary policy hawk Eiko Shinotsuka said in a speech to local business leaders in Matsumoto, north of Tokyo, that the time was ripe to end the year-old zero interest rate policy.

But at the same time, she said the central bank should not aggressively tighten policy.

Shinotsuka has repeatedly proposed at Policy Board meetings that the BOJ lift its overnight target to 0.25 percent from its present level of virtually zero, so her comments on Friday were no surprise to the bond market, though some market sources noted a slight change in her tone when she said the market had stabilised as a result of the zero-interest rate policy.

Market sources said it was rare to hear positive comments from her about the zero-rate policy.

September TIBOR-based euroyen futures were at 99.685, up from Thursday's day-session settlement of 99.660.

The BOJ left the money market with a projected net surplus of 1.0 trillion yen at its regular operation.

The key overnight call rate was mainly traded at 0.02 percent, unchanged from Thursday's weighted average.-Reuters