JGBs fall after US jobs data eases economy worries

Trade the News

Tuesday September 07, 2010 05:38:02 PM GMT

* US jobs data latest in list of upbeat indicators

* Curve flatter past 10-yrs on bargain hunting in superlongs

* Futures slip into Ichimoku cloud for first time since April

By Shinichi Saoshiro

TOKYO, Sept 6 (Reuters) - Japanese government bonds fell on Monday, with futures dropping to a two-month low, after better-than-expected U.S. jobs data further eased concerns over the health of the global economy and hurt demand for safe-haven debt.

The yield curve flattened beyond the 10-year zone as investors hunting for bargains trimmed earlier losses in the superlong sector, suggesting that the recent sharp rise in yields may have started to peter out.

Data released on Friday showed that U.S. employment declined less than forecast in August, adding to several indicators last week suggesting that pessimism towards the U.S. economy, and as an extension the global economy, was perhaps overdone.

"Bonds were kept on the back foot after the U.S. jobs data. Position adjustments ahead of this month's rollover in the lead futures contracts is another factor keeping the market on a weak footing," said Naoki Tsuchiyama, a market economist at Mizuho Securities.

Lead September 10-year futures were down 0.46 point at 141.44 after hitting an eight-week low of 141.41. Futures dipped into the cloud on the Ichimoku chart -- a bearish technical signal -- for the first time since rising above the cloud late in April.

Market players said selling in futures was exacerbated by participants rolling over long positions, which involves selling the September contracts and buying December contracts.

The JGB market's continued drop is part of a wider phenomenon among government bonds, with U.S. Treasuries and German Bunds also retracing strong rallies on the slight thaw in economic pessimism.

The benchmark 10-year yield was up 3 basis points at 1.165 percent, a two-month high.

The yield has surged more than 25 basis points from a seven-year trough of 0.895 percent hit less than two weeks ago, when the yield curve bull flattened on heavy buying by financial institutions looking for higher yields in longer-dated maturities.

But the rise in superlong yields on Monday was curbed by bargain hunting from investors including domestic life insurers.

The 30-year yield climbed 1 basis point to 1.930 percent after hitting a two-month peak of 1.940 percent. The yield has spiked about 40 basis points from a seven-year low struck late in August.

"The steepening of spreads like the 10-year/20-year and 10-year/30-years was perhaps overdone. Bargain hunting from life insurers and pension funds may pick up pace if the 20-year yield nears 1.900 percent," said Tsuchiya at Mizuho Securities.

The 10-year/30-year yield spread tightened to 76.5 basis points from a six-week peak of 78 basis points. The spread flattened to as much as 60 basis points in mid-August, an 18-month low.

A 30-year auction on Wednesday will test investor demand after superlongs were exposed to heavy selling last week, as institutional investors booked profits ahead of the Sept. 30 domestic fiscal half-year end. (Editing by Joseph Radford)

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