The benchmark 10-year Japanese government bond yield edged higher on Friday as investors were cautious about the outlook for US Treasury debt despite it showing some recovery the previous day. Investors brushed off mixed domestic economic data, and trade activity was subdued and somewhat directionless, dealers said.
Some buying back of the 10-year JGBs was seen in the morning but that move was limited, which disappointed the market and then led investors to sell JGBs, dealers said. "Also, investors stayed largely on the sidelines ahead of the weekend and the 10-year JGB auction next week," he said.
June 10-year futures inched 0.05 point higher to 136.41, recovering from a seven-month low of 136.02 hit on Thursday. The benchmark 10-year yield edged up 0.5 basis point to 1.485 percent. The yield rose to 1.500 percent on Thursday, the highest since November, following a spike in the 10-year US Treasury yield to a six-month high.
Short-term notes were holding relatively steady compared to longer-term bonds as investors felt safe buying them on the view that the Bank of Japan will keep its low interest rate policy, dealers said. Tokyo's Nikkei share average hit its highest level in more than months to close at 9,522.50 on Friday. The five-year yield was flat at 0.810 percent, and the two-year yield was steady at 0.350 percent.
The two-year yield fell to a three-year low at 0.335 percent on Thursday after the auction of the maturity went smoothly and confirmed firm demand from Japanese banks. Japan's industrial output for April jumped 5.2 percent in April, the biggest monthly gain since 1953, but the jobless rate hit a 5-1/2-year high, household spending fell, and the country remained stuck in deflation.
The 20-year yield rose 2.5 basis points to 2.150 percent and the 30-year yield was up 2.5 basis points to 2.245 percent. The spread between the two- and 20-year yields widened to 180 basis points on Friday, the highest in more than three years. US Treasury debt prices recovered some ground on Thursday as traders welcomed the conclusion of $101 billion new issuance auctions that reinforced worries about the country's growing debt burden.