JGBs edge up on weak sentiment data

Japanese government bond futures rose on Wednesday, keeping their distance from a seven-year low as data showing weak business sentiment reinforced the view that the Bank of Japan is in no hurry to lift interest rates.
JGBs were also supported by a rise in US Treasuries, which extended gains for a third session on Tuesday and further recovered from the heavy sell-off of the past few weeks. Comments from Bank of Japan Deputy Governor Toshiro Muto kept intact market expectations that the BoJ will lift rates to a 12-year high of 0.75 percent in August.
September futures ended at 131.70, 0.35 point higher on the day but little changed after Muto said the timing of a rate rise may be moved forward or backward depending on movements in the economy and prices, suggesting that the BoJ does not have a set time frame for rate rises.
Analysts said investors were buying bonds after a heavy sell-off in the past few weeks, but added that many are cautious about taking prices too high, as a rate rise is imminent.
"Muto's remarks confirmed that the BoJ intends to raise interest rates," said Koji Shimamoto, chief strategist at BNP Paribas. "As short-covering trades remain, JGB futures tend to react more on factors for buying," he said. The 10-year yield slipped 3.5 basis points to 1.890 percent, keeping its distance from an 11-month high of 1.985 percent hit last week.
The five-year yield slid 2.5 basis points to 1.495 percent. Last week the yield rose to 1.605 percent, the highest since the maturity was first issued in 2000. Shorter maturities underperformed the rest of the market as expectations for a BoJ rate hike in coming months kept investors careful about picking up two-year notes too aggressively.
The two-year yield dipped 1.5 basis points to 1.015 percent. The 20-year yield fell 3.5 basis points to 2.285 percent, while the 30-year yield slipped 2 basis points to 2.500 percent.
JGBs have recovered from an intense sell-off in the past four weeks that dragged futures to a seven-year low of 130.76 as investors dumped bondfell to minus 2.2 from plus 0.1 in the previous quarter, indicating big manufacturers were less confident about business conditions.
The data has some correlation with the BoJ's high-profile quarterly tankan business sentiment survey due on July 2, and analysts said that Wednesday's showing suggested a chance that the results of the BoJ poll may be weaker than the previous one.