Japanese government bonds (JGBs) were mixed in light trading on Friday, as investors awaited the outcome of negotiations among US lawmakers over a $700 billion bailout for the US financial system. Trading volumes were light, with market players eager to see final details of the plan, which would allow the US government to buy toxic mortgages and other bad assets from financial institutions.
"There is focus on issues such as how prices on the assets will be set and whether they will be able to come up with a framework that makes it is easy for financial institutions to participate," said Katsutoshi Inadome, fixed-income strategist for Mitsubishi UFJ Securities. Amid this wait-and-see mood, longer-term cash JGBs could draw support if passive strategy investors buy bonds to match moves in benchmark bond indexes, as they tend to do towards the end of the month, he added.
December 10-year JGB futures fell 0.20 point to 137.20 Trading volume was sparse, at around 21,000 lots. The 10-year JGB yield eased 1.5 basis points to 1.460 percent. The 20-year yield dipped 1 basis point to 2.095 percent. The two-year yield inched up 0.5 basis point to 0.815 percent while the five-year yield rose 2 basis points to 1/095 percent.
"The short-term JGB yield is bearing the brunt of rising money market rates while investors are probably buying super-long maturities to allocate funds for the second fiscal half," said Chotaro Morita, head of Japan fixed income strategy at Barclays Capital in Tokyo.
Flight-to-quality buying was not as strong in the JGB market as was in US Treasuries markets and investors were cautious about pushing JGB yields even lower as current levels already reflect the state of Japan's deteriorating economy, he said.
Negotiations towards a massive bailout for Wall Street fell into disarray on Thursday night after Democrats complained about an entirely new Republican plan, with lawmakers offering conflicting reports on presidential candidate Sen. John McCain's position.
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