Japan bonds fall further

Japanese government bond (JGB) futures slipped further yesterday from a two-month peak hit last week.

The growing optimism about a global economic recovery has prompted investors to move money to stocks from the government debt securities.

The five-year/20-year JGB yield spread matched its highest since November 1999 as prospects of further central bank easing pinned down yields on midterm maturities, which are more sensitive to shifts in monetary policy outlook. March 10-year JGB futures edged down 0.07 point to 140.12, slipping from 140.27, their highest since late December.

US monthly employment data showed late last week that the world's biggest economy lost 36,000 jobs in February, less than the 50,000 job cuts expected by economists. But bond losses were limited as the JGB market received support from speculation that the Bank of Japan (BoJ) would further ease its monetary policy in the coming months to help Japan's economy move out of deflation.

"The rise in bond yields has been small as investors are willing to pick up JGBs, with some speculating the BoJ could further relax its policy at next week's board meeting," said Hidenori Suezawa, chief strategist at Nikko Cordial Securities.

JGBs rose on Friday after the Nikkei newspaper said the central bank will debate whether to ease monetary policy further by expanding the fund-supply operation it introduced in December, under which it extends loans to commercial banks at a policy rate of 0.1 per cent.

"Demand is also strong as a large amount of government debt is maturing this month," said Suezawa at Nikko Cordial Securities.

Analysts said some ¥10 trillion of JGBs are being redeemed in March. Government bonds with maturities of five years or longer will mature in March, June, September and December.

Large amount of bonds maturing means that durations of popularly followed bond indexes are extended to accommodate the redemptions, generating demand for longer-dated paper from investors following monthly changes to these indexes.

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