Japanese government bond futures edged lower on Monday, tracking a fall in Treasuries, but losses were limited and the lead contract held near a 22-month high as credit jitters kept investors wary of taking risks. December 10-year futures inched down 0.01 point to 137.03, staying within reach of the 22-month high of 137.31 hit on Friday.
Futures had pushed up into positive territory several times during the session as the Nikkei share average erased earlier gains to end 0.7 percent lower. Fears of more fallout at financial institutions from the housing downturn and credit crunch have also fed investor doubts about how soon the Bank of Japan can raise interest rates, thereby encouraging investors to stick with their JGBs holdings.
But bond investors were cautious of chasing JGBs up more after a rally in recent weeks that had pushed the benchmark 10-year yield down more than 20 basis points from the start of the month to a 22-month low.
"Demand for safe-haven government bonds from investors, especially foreign investors, looks like it will stay strong for a while," said Tetsuya Miura, bond strategist at Shinko Securities. The benchmark 10-year yield dipped half a basis point to 1.460 percent, matching Friday's trough, which was the lowest level since January 2006.
Bond analysts at Nikko Citigroup forecast the 10-year yield would trade between 1.45-1.52 percent this week though further sell-offs in stock markets could push it below 1.450 percent. US Treasuries fell on Friday as a stock market recovery damped demand for government debt and comments from Federal Reserve officials unnerved investors hoping for a Fed interest rate cut next month.
The five-year yield rose half a basis point to 1.035 percent, edging up from Friday's 1.015 percent, which was a 20-month low. The two-year yield eased half a basis point to 0.730 percent after falling as low as 0.715 percent on Friday, hitting a nine-month low and going well below the BoJ's 0.75 percent Lombard rate for direct lending to banks.
The 20-year yield was down half a basis point to 2.030 percent after touching as low as 2.025 percent, a three-month low, as traders gear up for an auction in this maturity on Wednesday. The 30-year yield fell a basis point to 2.265 percent.