JGBs flat as rising stocks chip away early gains

Japanese government bond (JGB) prices ended almost flat on Friday, with the benchmark futures holding just above a six-year low after their slim gains in morning trade were erased by jump in Japanese share prices.
JGB prices had inched up earlier, drawing support from a rally in US debt on the back of expectations that the Federal Reserve is close to ending its credit-tightening cycle following a widely expected rate rise.
The imminent Bank of Japan's tankan corporate sentiment survey on Monday kept most investors on the sidelines, limiting price moves. Traders were also wary of buying ahead of a 1.9 trillion yen auction of 10-year JGBs on Tuesday.
"Apart from some pension funds, everybody was waiting for the tankan," said a trader at a brokerage firm.
The market showed limited reaction to Japanese core consumer prices which came in line with analysts' expectations and added fuel to market speculation that the Bank of Japan could raise rates as early as next month.
September futures ended 0.07 point higher at 131.65, not far from a six-year low of 131.50 hit on Thursday. Although the contract rose as high as 131.80 in early morning trade, huge gains in Japanese share prices later induced some selling in bonds.
Nikkei share average rose 2.54 percent to 15,505.18.
The benchmark 10-year JGB yield was up a half basis point at 1.920 percent.
He said the benchmark 10-year yield could be hemmed between 1.85-1.95 percent ahead of a BOJ policy meeting in the middle of next month.
The two-year yield was unchanged at 0.840 percent - a level which many analysts say has fully priced in a rate hike in July.
The five-year yield was also flat at 1.410 percent. The 20-year yield rose 1.0 basis point to 2.295 percent. In morning trade JGBs posted small gains on rise in US Treasuries.
The Fed toned down its rhetoric about the possibility of future rate rises after lifting rates by 25 basis points to 5.25 percent. Anticipation of an end to a two-year run of rate rises had also sparked a rally in US stock prices.
Japanese data released earlier on Friday showed that nation-wide core prices climbed 0.6 percent last month from the same period last year, matching market expectations and showing that the economy was well on its way to recovering from a near-decade bout of deflation.