Japanese government bonds jump after weak US payrolls

Japanese government bonds rallied on Monday as the market breathed a sigh of relief after worse-than-expected US jobs data, choosing to ignore a weaker yen and a rise in Nikkei shares to a new 21-month intraday high.
The five-year maturity saw choppy trading ahead of Tuesday's auction of a new 1.9 trillion yen ($17 billion) offering, but the entire yield curve benefited from the non-farm payrolls figures, which appeared to rule out any near-term US credit tightening.
The market had been battered last week by speculation that the payrolls data would show the long-dormant jobs market finally picking up, setting the stage for an earlier-than-expected Fed rate increase and a global credit tightening cycle. "A lot of it seems to be short-covering because of the jobs data," Eiji Dohke, chief strategist at UBS Securities in Tokyo, said of the gains in Japanese government bonds.
The yield on the benchmark 258th 10-year Japanese government bonds fell six basis points to 1.365 percent by 0625 GMT, its lowest in nearly a week.
The US Labour Department said on Friday 21,000 jobs were created last month, well below a market consensus for an increase of 125,000. The rise compared with an increase of 97,000 in January, itself a downward revision.
Traders had been wary of a sharp spike in US Treasury yields as a US bond sell-off last year had triggered a jump in Japanese government bonds yields, with that on the 10-year issue quadrupling within a few months from a record low of 0.43 percent set in June.
March 10-year Japanese government bonds futures ended up 0.55 point at 138.85.
Traders said the rollover from the March contract, which expires on Wednesday, into June had so far caused little problem. Volume in the March contract totalled 29,947 lots, while that in June stood at 2,059.
The five-year note yield fell 3.5 bps to 0.565 percent. Traders said Tuesday's auction should be fairly well received if the coupon is set at 0.6 percent.
But they added that Japanese banks, which usually favour mid- to shorter-dated bonds, may show less interest than in the past due to worries about an uptrend in interest rates, reflecting a steadily recovering Japanese economy.