Japanese government bond (JGB) futures tumbled on Friday as share prices soared on news that the US government is working on a plan to address systemic risks in US markets and deal with problem assets of financial firms.
Senate Banking Committee Chairman Christopher Dodd said on Thursday that Congress will respond to a Treasury Department proposal for containing the Wall Street crisis after receiving details, which could occur sometime this weekend.
Hopes for comprehensive steps to tackle the crisis drove the Nikkei share average up 3.8 percent, following a sharp rise in US stocks overnight.
Some market players cited futures selling by trend-following commodity trading advisers (CTAs), which are programme traders executing orders systematically in very large lots regardless of market conditions or fundamental views.
But most market players were reluctant to take huge positions ahead of the weekend, wary of the US developments and also of more JGB settlements due on Monday.
Counter-parties of failed investment bank Lehman Brothers were left seeking JGBs or cash they did not receive from Lehman. Heightening counter-party risks prompted investors to set aside ample cash, especially ahead of the end of the fiscal first half on September 30, leading to some selling of JGBs for cash, traders said.
"Players are not doing much beyond adjusting positions before the weekend, preparing for the market to swing either way," said a portfolio manager at a Japanese insurer. "Demand for cash before the end of the fiscal half year is extremely strong and players are not making fresh purchases of JGBs even if yields appear attractive," he said.
December 10-year JGB futures fell as much as 1.73 point to 136.61 before trimming some losses to stand at 137.02 down 1.32 point on the day. Futures hit a 5-« month peak of 140.35 on Tuesday, when JGBs soared on safe-haven buying in the wake of Lehman's collapse.