TOKYO: Japanese government bond futures rose on Thursday as investor caution on taking risks ahead of a key European leaders' summit this weekend weighed down riskier assets and supported safe-haven demand for government bonds.
Medium-dated JGBs and futures took their cues from a climb in US Treasuries, pushed up by comments from French President Nicolas Sarkozy on Wednesday that plans to tackle the euro zone debt crisis have stalled, with Paris and Berlin at odds over how to increase the firepower of the region's bailout fund.
The five-year yield declined 1 basis point to 0.370 percent, off a three-month high of 0.385 percent hit on Wednesday. The 10-year yield also fell 2 basis points, to 1.000 percent.
But gains were capped as market participants were hesitant to chase prices higher before an EU summit on Sunday.
December 10-year JGB futures closed up 0.18 point at 142.33, off a 1-1/2 month low of 142.04 hit earlier this week, but charts stayed bearish as futures prices remained in the middle of the daily Ichimoku cloud.
Some market participants said they were not paying much attention to charts at this stage, however. "I know the chart is showing bearish signs but at this point people are focusing on the EU summit on Sunday, so other factors don't mean much," said a fund manager at Japanese asset management firm.
JGBs are also likely being underpinned by the view that additional bond sales to fund reconstruction after the March earthquake will be much smaller than initially expected.
"Many think additional debt sales will be in short- and medium-term maturities, which are supported by the BOJ's easy monetary policy, and that the market impact will be subdued ... this really eases investor anxiety and supports the overall JGB market," the fund manager said.
LOSSES TRIMMED
Superlongs, such as 20 and 30 years, trimmed losses after a 1.1 trillion yen ($14.3 billion) 20-year JGB auction drew moderate demand on Thursday.
The No.130 20-year yield was up 0.5 basis point at 1.760 percent, after hitting a fresh one-month high of 1.770 percent. The 30-year yield was flat at 1.965 percent after marking a one-month peak of 1.975 percent.
Demand from buy-and-hold investors such as life insurers as well as Japanese banks likely helped the auction, with some planning to shift their holdings from foreign bonds, which are becoming less attractive after the US Federal Reserve unveiled plans to sell short-term Treasury holdings and buy longer-dated debt, pushing long-dated Treasury yields lower.
Such trends were reflected in data released on Thursday. Japanese insurers remained big buyers of JGBs with a net purchase of 1.26 trillion yen in September, data from the Japan Securities Dealers' Association showed. Their net purchases hit a record high of 1.46 trillion yen in August on data that stretches back to April 2004, with super longs making up the bulk of their purchases.
The Nikkei stock average fell 1 percent on Thursday.
US Treasury prices rose modestly on Wednesday in volatile trading as expectations dimmed that this weekend's European Union summit would result in a solution to Europe's financial woes.
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