At 0600 GMT Change TFX Sept 3-Mos Euroyen Price: 99.635 Unchanged TSE June 10-Yr JGB Futures Price: 138.23 -0.17 10-Yr 1.4% JGB No. 306 Yield: 1.395 +0.015%
TOKYO -(Dow Jones)- Japanese government bonds fell in Tokyo Monday as investors sold safe-haven assets after European leaders agreed over the weekend on the details of a bail-out for Greece, damping concerns the country's sovereign debt woes could worsen.
For the week, JGBs could remain weak if global equities gain further, though strong results at auctions on Tuesday and Thursday may support the market, analysts said.
In Tokyo Monday, lead June futures closed down 0.17 at 138.23. The benchmark 10-year yield was up 1.5 basis point at 1.395% as of 0600 GMT.
The futures contract could fall to 138.00, while the 10-year yield could rise to 1.410%, later in the week, said Jun Ishii, chief fixed income strategist at Mitsubishi UFJ Securities.
European Union finance ministers on Sunday agreed to provide up to EUR30 billion to Greece at below-market interest rates, with an additional EUR15 billion from the International Monetary Fund.
Investors interpreted the large loan and generous conditions as a sign that Greece's fiscal crisis may stabilize, which could encourage investors to channel more assets away from safe-haven JGBs and other investments and into risk-sensitive assets.
The Japanese Ministry of Finance's auction of Y600 billion in 30-year JGBs Tuesday and Y2.4 trillion in 5-year notes on Thursday will offer clues to current demand levels at opposite ends of the curve.
The 30-year tender Tuesday should go smoothly on demand from Japanese life insurance companies, regular buyers in the maturity, and from dealers who need to cover short-positions in the super-long end, analysts said.
But Thursday's five-year sale could highlight weaker demand in the front of the curve, as banks have refrained from aggressive buying since the start of the Japanese fiscal year on April 1 as they await further price falls, analysts said.
"We believe it may take some time to absorb the (5-year) issue assuming the yen continues to depreciate and stocks rise," said Makoto Yamashita, chief Japan interest rate strategist at Deutsche Securities.
If that occurs, the gap between long- and short-maturity yields may continue narrowing, a process called bull flattening, said Chotaro Morita, head of Japan fixed income at Barclays Capital.
"Over the past few weeks bull flattening pressure has emerged, and though in the long-term it's uncertain whether it's sustainable, in the short-term it may increase further," Morita said.
Yet while banks have hesitated to buy actively in the shorter-end of the curve so far this fiscal year, that could change later as a continued fall in bank lending leaves the financial institutions with even more excess cash, Morita said.
Earlier in the day, data showed total Japanese bank lending, excluding credit unions, fell 2.0% on year in March, the sharpest drop since August 2005.
The report highlights how "the lending and deposit gap that has widened drastically since last year will continue to encourage banks to increase their JGB holdings more," Morita said. Banks often park their excess funds in the five-year and other shorter-dated maturities.
Other Cash Bond Yields At 0600 GMT Change 2-Year 0.2% JGB No. 291 Yield: 0.155% Unchanged 5-Year 0.5% JGB No. 88 Yield: 0.550% +0.010 20-Year 2.2% JGB No. 116 Yield: 2.120% +0.015 30-Year 2.3% JGB No. 32 Yield: 2.225% +0.010
Copyright 2009 Dow Jones Newswires
UPDATE:Cyprus Central Bank Governor: World On Way To RecoveryCorker: GOP erred on financial reform
