Search

JGBs soar on Nikkei slide, futures hit 5-month high

Reuters - Friday, September 5

* JGB futures hit 5-mth high, Nikkei hits 5-1/2-mth low

* Drop in yields seen limited with BOJ on hold

* Futures trading volume below Thursday's before U.S. data

* Sharp moves make dealers nervous before next week's auction

By Eric Burroughs

TOKYO, Sept 5 - Japanese government bond futures soared more than a full point on Friday to a five-month high, with investors dumping risky positions in stocks and shifting funds into safe-haven debt.

The Nikkei average <.N225> lost 2.8 percent to finish at a 5-1/2-month low as investors fretted about the global economy's health.

Data during the day showed Japanese companies unexpectedly cut capital spending in the second quarter, likely meaning the economy contracted even more than previously estimated during the April-June period. [ID:nT151264]

JGB futures reversed a sharp slide the previous day in what analysts said were very thin conditions where it is easy for players to shove the market around.

But analysts also said that 10-year yields would likely have a tough time falling below their four-month low of 1.400 percent as long as the Japanese economy does not deteriorate much more and the Bank of Japan keeps interest rates on hold.

"Our view is that these are highly volatile markets going nowhere," said John Richards, head of Asia economics and strategy at RBS Securities. "With the central bank on hold and the economy probably in a mild recession, we're stuck in this situation." September 10-year futures <2JGBv1> soared 1.18 points to 138.68. They hit a five-month peak of 139.09 and remained firm throughout the day.

Despite the second day of big price actions, trading volume in the lead contract stayed below Thursday's 63,771, the highest in four months, as many market players refrained from taking big positions before U.S. jobs data later in the day.

Futures had slid sharply the previous day when some foreign hedge funds, such as commodity trading advisers, rushed to liquidate long positions before the lead contract rolls over to December next week.

The benchmark 10-year yield <JP10YTN=JBTC> dropped 5 basis points to 1.460 percent, but for the week yields were down only slightly and holding above the 1.400 percent level.

The five-year yield <JP5YTN=JBTC> was down 5.5 basis points at 1.025 percent, while the two-year yield <JP2YTN=JBTC> dipped 2 basis points to 0.725 percent as the yield curve flattened.

Analysts said abrupt moves in the futures could come again anytime soon, given growing uncertainty about financial markets, making dealers nervous about a five-year auction scheduled on Tuesday next week.

Global markets have been shaken by a fierce bout of deleveraging by hedge funds and other investors who had bet the world economy would better withstand the U.S. downturn and credit crisis, leading to heavy selling of the euro, Australian dollar and commodities.

The pain has spread to emerging markets, raising fears that the sell-off has further to run. The impact on JGB yields depends on how much further the Nikkei falls with any global equity slide, analysts said.

For the year, the Nikkei is down 20 percent, worse than the 16 percent drop in the S&P 500 <.SPX> and 17 percent drop in Britain's FTSE 100 <.FTSE> but better than the 31 percent slide in the MSCI Asia ex-Japan index <.MIAPJ0000PUS>.

Recommend this article

Average (0 votes)
0 stars
Sign in to recommend this article »
Most Recommended Stories »

Related Articles: Business