Japanese government bond prices surged on Friday, rebounding from the previous day's losses, with investors relieved after the US Treasuries market handled the last supply hurdle of the week comfortably. US Treasuries rallied on Thursday, pulling benchmark yields back from eight-month highs above 4 percent, as a solid auction of 30-year bonds eased worries over the United States' rising budget deficit.
The Treasury market had to absorb a total of $65 billion in new debt supply this week. Thursday's 30-year Treasury debt auction followed a 10-year note sale on Wednesday and a three-year offering on Tuesday. Long-term bond yields globally have been climbing this year as waves of government debt being issued around the world to finance stimulus measures have raised concerns about markets' ability to handle the issuance glut.
The recent yield rise in US Treasuries has been followed with particular interest. On Thursday the 10-year benchmark JGB yield rose to its highest since late October after its US counterpart spiked to 4 percent following a lacklustre 10-year tender and news that Russia will reduce the share of Treasuries in its gold and forex reserves.
September 10-year futures advanced 0.42 point to 136.01. The five-year yield fell 1.5 basis points to 0.865 percent. The 10-year yield declined 4 basis points to 1.515 percent after hitting 1.560 percent on Thursday, the highest since October 22. The 20-year yield dropped 2 basis points to 2.175 percent and the 30-year yield also fell 2 basis points, to 2.285 percent.
The yield curve took on a concave shape as 10-year bonds outperformed other maturities. Market players said buying from pension funds pulled down the 10-year yield with this week's US Treasury auctions now over, although bids for super long bonds were not as aggressive ahead of next Wednesday's 20-year JGB auction.
Tokyo's Nikkei stock average rose to an eight-month high on improving confidence in the health of the global economy. "Bonds are holding up quite well despite the robust stocks. Buying of the new lead September futures contract and yesterday's decent five-year auction results are likely supporting JGBs, but the market still lacks a decisive incentive to provide clear direction," said Koji Ochiai, a senior market economist at Mizuho Investors Securities.
September 10-year futures took over as the lead contract after June futures expired this week. The 2 trillion yen ($20 billion) five-year JGB auction on Thursday attracted strong demand from investors. Next week market participants will eye the Bank of Japan's two-day meeting starting on Monday for insight into the bank's monetary policy stance amid signs that the worst of the recession could be over.
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