Japanese government bond prices rose on Friday as stocks withered, enhancing the appeal of safe-haven assets, with benchmark bond yields on track to end the week lower. The superlong sector continued to underperform after the previous session's disappointing 20-year auction. Market participants have said investors have fewer incentives to buy longer maturities and extend the duration of their portfolios until the outlook for US interest rates is more clear.
Some strategists expect a modest decline toward the end of Japan's fiscal year-end in March, but also expect dip-buying to continue. "If you had a chance to buy on the dip at the front end earlier this week, that was great. We were recommending 4- and 5-year paper, but either you bought it at lower levels and are happy, or you likely have to wait for the next chance," said Neale Vincent, strategist at Nomura Securities.
"Our forecasts are for a modest selloff to around 1.1 percent into the fiscal year end, so we are recommending payer spreads on 10-year swaps in which you buy at-the-money and sell out of the money," he added. The benchmark 10-year JGB futures contract closed at its session high of 143.85, up 0.26 point, moving away from a 2 1/2-month low of 143.27 hit last week. Futures closed above technical resistance at their 14-day moving average, now at 143.74.
The 10-year yield lost 2 basis points to 0.805 percent after falling to a one-week low of 0.800 percent on Thursday in the wake of the lacklustre 20-year sale. The 10-year yield stood at 0.835 percent at the end of last week, in which it rose to a two-month high of 0.860 percent. Futures extended gains as stocks slipped. Japan's Nikkei stock average lost 1.2 percent, as expectations for quick stimulus measures from the US Federal Reserve dimmed.
Downbeat economic signals also supported demand for bonds. A Reuters poll showed on Friday big Japanese manufacturers' sentiment worsened in August and is expected to improve only slightly in the coming months. The 20-year bond yield slipped half a basis point to 1.670 percent, moving away from a more than two-month high of 1.690 percent hit on Thursday after the disappointing auction.