Japanese government bond futures edged higher on Thursday, pulling away from three-month lows hit in the previous session on a sharp slide in Tokyo share prices and overnight gains in US Treasuries.
JGBs gained some reprieve after US Treasuries rallied on Wednesday as investors refocused on housing and other weak areas of the economy after recent evidence of receding inflationary pressure.
A 1.7 percent tumble in the Nikkei share average gave a boost to JGBs, a day after they fell on caution before the Bank of Japan's twice-yearly outlook report due next week.
"US bond yields dipped yesterday and the day before, and Japanese shares are struggling," said Mitsumaru Kumagai, chief JGB strategist for Merrill Lynch. "Since JGBs have fallen toward the bottom of a recent trading range, there is probably some gradual bargain-hunting taking place." June 10-year futures climbed 0.34 point to 133.90 pulling away from a three-month low of 133.41 hit on Wednesday. Futures were lifted in part as foreign market players covered short positions, traders said.
The benchmark 10-year yield dropped 3.5 basis points to 1.670 percent off a two-month peak of 1.710 percent struck on Wednesday. Some domestic investors have been keen to buy on any rise above 1.700 percent, putting money to work after Japan's new fiscal year began this month. The yield curve flattened as two-year yields fell by a relatively modest 1.5 basis points to 0.835 percent
JGBs dipped in the previous session as investors refocused on the possibility that the Bank of Japan may raise interest rates again before the end of the year, and losses had been exacerbated by a rise in Tokyo share prices and worries about this week's rises in European bond yields.