Japanese government bonds pushed higher on Friday, with investors relieved after the European Central Bank failed to signal any further tightening of monetary policy and a 10-year bond auction the previous day went better than expected.
The Nikkei stock average slumping to its longest losing streak in over half a century provided bonds with further support. The ECB lifted rates to 4.25 percent on Thursday as widely expected, but comments from ECB President Jean-Claude Trichet that the central bank did not have a policy bias helped cool expectations for more such hikes later this year.
The ECB's move to tighten rates to contain inflation, even as euro zone growth shows signs of faltering, was seen as a factor that could open the door for the Bank of Japan to also tighten monetary policy in the months ahead.
At the same time, the US payrolls data on Thursday showed companies cutting 62,000 jobs in June, close to expectations and suggesting the economy is still suffering from the housing market slide and credit crunch.
The figures helped to cool speculation about how quickly the Federal Reserve could also consider lifting rates after its aggressive cuts to 2 percent. A decent auction of 10-year paper the previous day also gave some relief to the market, which had suffered through a string of poor offerings during a three-month sell-off that petered out in mid-June.
While the previous day's 10-year auction was in large part a dealer-led affair, traders said, investors emerged on Friday to shop for the new JGBs with the much anticipated events out of the way.
"The ECB didn't sound as hawkish as feared, and the US jobs report confirmed that the US economy keeps deteriorating," said Naomi Hasegawa, senior interest-rate strategist at Mitsubishi UFJ Securities.
But Hasegawa said bond yields are prone to swinging in both directions as investors grapple with the potential inflationary impact of record high oil prices, just as the Japanese and global economies show more signs of losing steam.
"It could do in either direction. It depends on oil prices, global growth and how central banks will react," she said. September 10-year futures climbed 0.32 point to 135.18. Trading activity was subdued, with US financial markets set to be closed later in the day for the Independence Day holiday.
The benchmark 10-year yield fell 2.5 basis points to 1.645 percent. But for the week, the 10-year yield is up 3.5 basis points. Atsushi Ito, a fixed-income strategist at Morgan Stanley, also said that although the benchmark yield could test resistance at 1.600 percent next week, it will be harder for JGB yields to fall further. The five-year yield dropped 1.5 basis points to 1.235 percent, while the two-year yield was down 1 basis point at 0.830 percent.
Comments
Comments are closed.