Japanese government bond prices decline

Japanese government bond prices fell on Thursday, sending the yield on the 10-year JGB to a one-month high, as a rise in Tokyo share prices intensified pressure on bonds already hit by profit-taking. Traders said an upgrade by the Japanese government of its view on trends in machinery orders, which followed the release of slightly better than expected data for December, also hit JGB prices.
"The market has been adjusting positions after the steep flattening of the yield curve and the market was reacting to a number of factors today," said a trader at a Japanese trust bank.
Core private-sector machinery orders, a key gauge of trends in capital spending, fell 8.8 percent in December from a month earlier, better than a market forecast of an 11.0 percent fall.
The benchmark 10-year yield was up four basis points at 1.405 percent, its highest level in nearly a month.
The five-year yield rose as high as 0.6 percent, its highest since December 30, before easing to 0.595 percent, up 2.0 basis points on the day.
The two-year yield rose one basis point to 0.115 percent, its highest since November 29.
The 20-year yield, which has risen over 10 basis points since hitting an 11-month low of 1.865 percent on Tuesday, jumped 4.5 basis points to 2.0 percent.
Twenty- and 30-year bonds have rallied in the past two weeks as pension funds and other investors snap up longer-dated paper to match changes in benchmark performance indices such as the Nomura BPI index.
Analysts said the long bonds had also been supported by buying by foreign investors who considered the bonds more attractive than their US and European counterparts due to the relatively steep JGB yield curve.
The March JGB futures contract ended down 0.31 point at 138.65 after suffering its biggest one-day fall on Wednesday.
The Nikkei share average closed up 0.7 percent at 11,553.56, its highest close since July 13.
Traders said the market was keeping close eye on the Bank of Japan's two-day board meeting on February 16-17, especially after Policy Board member Miyako Suda said on Wednesday the central bank may soon need to adjust its policy and allow for a breach of its current account deposits target. In the money market, benchmark three-month euroyen futures for September 2005 expiry were flat at 99.875, indicating an interest rate of 0.125 percent.