Japanese government bond futures erased earlier losses and edged higher on Monday as Tokyo shares tumbled and prompted investors to cover their short positions in the bond market. Futures initially slipped after US Treasuries fell late last week as rising consumer price inflation fanned doubts about whether the Federal Reserve will cut interest rates further.
JGBs losses were also tempered by ongoing worries about the outlook for the Japanese economy amid concerns about a US slowdown and turmoil in overseas credit markets. Trade was thin after a slew of economic data last week including the Bank of Japan's quarterly tankan survey on Friday.
"With most of the major economic events this year already over, we see fewer players in the market and activity is very slow," said a senior interest rate trader at a Japanese bank. "The next focus could be how aggressively Japanese banks will buy bonds at the start of the new year."
March 10-year JGB futures inched higher 0.02 point at 136.48 after falling as low as 136.10 at one point and edging towards a one-month low of 135.94 hit last week. The benchmark 10-year JGB yield was flat at 1.545 percent after reaching as high as 1.575 percent to approach a one-month high of 1.585 percent struck last week.
The 20-year yield was also flat at 2.145 percent ahead of an auction of the new issuance of the same maturity on Tuesday. The five-year yield fell half a basis point to 1.055 percent while the two-year yield dropped 1.5 basis points to 0.715 percent.