Japanese government bonds fell on Thursday, with market sentiment dampened after the US benchmark Treasury note yield hit a four-month high earlier in the week and as Tokyo's Nikkei average climbed to a three-month high. The JGB yield curve steepened, with the five-year/20-year yield spread approaching a decade high hit last week.
Japan is likely to issue around 145 trillion yen ($1,583 billion) in JGBs to the market in fiscal 2010/11, which starts next April 1, government sources said on Wednesday, in line with market expectations. March 10-year JGB futures fell 0.13 point to 139.89 after hitting 139.75.
The 10-year Treasury note yield rose to its highest since mid-August on Tuesday amid economic optimism before pulling back slightly a day after. Japanese markets were closed on Wednesday for a national holiday. The two-year yield edged up 0.5 basis point to 0.165 percent. The five-year yield was unchanged at 0.455 percent after reaching a four-year low of 0.425 percent on Monday.
The 10-year JGB yield rose 1 basis point to 1.260 percent. The yield has moved in a narrow range of 1.225 to 1.270 percent this week after hitting an 11-month low of 1.190 percent at the beginning of the month. The 20-year yield climbed 2 basis points to 2.095 percent. The five- to 20-year yield spread inched up a basis point on the day to 164 basis points on Thursday, crawling towards a decade high of 165 basis points struck last week.
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