Japanese government bonds snapped three sessions of decline and took back some lost ground on Friday, as investors saw a buying opportunity after benchmark yields touched a three-week high in the previous session. Strong 20-year auction results on Thursday reassured investors worried about supply conditions, while expectations of continued easy monetary policy from the Bank of Japan also underpinned bonds.
Better than-expected US housing starts and a slew of Chinese data earlier this week made investors less pessimistic about the global economic outlook, which pressured US Treasuries and JGBs. But some strategists and market participants say the hopeful signs might not yet herald a trend. "People got all excited over the past few days, but they're beginning to realise now, does it change the current environment we're in? It may not," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch. Expectations of more BOJ easing remained, with some investors saying further steps could come as early as its October 30 meeting. Sources familiar with BOJ thinking said the central bank then will likely trim its long-term economic and price forecasts, but there is no internal consensus on whether it will expand its stimulus.
The benchmark 10-year JGB yield fell 1 basis point to 0 .780 percent, moving away from a Thursday session high of 0.795 percent, which was its highest since September 25. The 10-year JGB futures contract ended up 0.08 point at 143.97 after falling as low as 143.79 on Thursday, its lowest since September 21. Futures' 5-day moving average, now at 144.13, was poised to cross below their 20-day moving average, also now at 144.13.