JGB futures mostly flat

Japanese government bond futures were mostly flat on Friday as investors waited for signals from leaders working out details of a plan to contain the eurozone debt crisis, keeping the 10-year yield unchanged near 1 percent. France and Germany said in a joint statement on Thursday that the leaders will discuss in detail a comprehensive solution to the eurozone's financial problems at a summit on Sunday but no decisions will be adopted before a second meeting to be held by Wednesday at the latest.
December 10-year JGB futures inched down 0.02 point to 142.31, off a 1-1/2 month low of 142.04 hit earlier this week and keeping above their 75-day moving average, which has offered support. The 10-year JGB yield was also flat at 1.005 percent, off a 1-1/2 month high of 1.030 percent marked on Tuesday.
Superlongs, such as 20- and 30-year bonds, underperformed with the 20-year yield climbing 1.5 basis point to 1.770 percent, matching a one-month high hit on Thursday. The 30-year yield was up 1 basis point at 1.975 percent. Traders and fund managers said some brokers who took long positions after Thursday's auction of the maturity were likely trimming them ahead of the EU summit in the next few days.
"Some brokers are holding long-dated bonds on the view that the Fed's Operation Twist could also send superlong JGB prices higher. But a lot of US economic data for September has shown signs of improvement, and fears that the euro zone debt crisis will spread to the global financial system are receding ... so they may want to trim some inventory before the EU summit," a fund manager of a US asset management firm said.
JGB yields could climb if Europe's debt woes begin to be solved, but many participants expect yields to stay range-bound near recent lows. "The 10-year yield is unlikely to break (its recent low of) 0.965 percent in the near-term because the euro zone debt crisis will not be as bad as the Lehman shock, but JGBs will be supported by a weakening outlook for the global economy," said Takeo Okuhara, a fund manager at Daiwa SB Investments.
JGBs are also expected to be underpinned by easing fears towards supply increases as the Japanese government will only boost two- and five-year bond sales by 100 billion yen each per month from December to finance a budget for rebuilding after a massive earthquake, and the size of additional sales is limited compared to initial expectations.