Japanese government bond futures edged up on Monday as Tokyo shares dropped after data showed the US economy shrank at its fastest pace in 27 years, reinforcing a gloomy outlook for Japan's economy. A batch of top Japanese companies that reported or forecast dire earnings and a stronger yen that eats into exporters' foreign profits also encouraged investors to seek cover in debt.
But gains were limited as investors held back ahead of an auction of the benchmark 10-year note on Tuesday. "Investors are not in a hurry to pick up JGBs, thinking there may be many chances to buy at Tuesday's auction or even after that," said a trader at a European brokerage.
Another reason for investor caution is that a further fall in Tokyo stocks could mean less risk tolerance at financial firms, traders said. Smaller risk tolerance could prompt firms to sell JGBs to compensate for losses incurred in other parts of their portfolios. March 10-year JGB futures rose 0.08 point to 138.99 in subdued trade after rising as high as 139.11.
The benchmark 10-year yield was unchanged on the day at 1.290 percent, after dipping as low as 1.270 percent. The Nikkei share average ended down 1.5 percent at 7,873.98. The Nikkei's 8,000 point, mark is seen as psychologically important, and analysts said that a sustained reading below that is likely to prompt investors to take profits in JGBs.
The two-year yield was down 0.5 basis point at 0.400 percent after a series of gloomy data in Japan and the United States fuelled concerns over a deep and prolonged global recession. Data showed on Friday that Japan's industrial output plunged a record 9.6 percent in December. A US report the same day showed the world's biggest economy shrank 3.8 percent in the fourth quarter, its fastest pace in nearly 27 years.