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JGBs slip as rally fades, weak Nikkei supportive

TOKYO: June Japanese government bond futures: ended on Friday lower as a rally in 20-year bonds ran out of steam, but a fall in Tokyo share prices and a firm yen moderated losses.

Dealers said light position adjustments dominated activity. Operators who took long positions in the 10-year sector on Thursday after a rally in 20-year bonds, unwound their positions because 20-year bonds did not add to their gains on Friday.

The yield on the 45th 20-year JGB stood at 2.245 percent, unchanged from late Thursday, but dealers said it retained its bullish trend.

"Position adjustments dominated the market. Without active participation from investors, the JGB market is likely to lack a sense of direction," a Japanese city bank dealer said.

The June 10-year JGB futures contract closed at 131.09, down 0.14 point from on Thursday's close of 131.23.

The yield on March 219th 10-year cash bond was at 1.790 percent, compared with Thursday's close of 1.780 percent. Turnover for the June contract was 50,768 lots.

The benchmark Nikkei stock average ended below the psychologically important 20,000 level, down 0.69 percent, or 137.57 points, at 19,927.54.

The dollar was quoted at 107.60/65 yen, compared with 107.73 yen in New York late on Thursday.

Many market players are wary about actively buying 10-year bonds below 1.8 percent after Finance Minister Kiichi Miyazawa said in early February that a 1.7 percent yield was "abnormal".

Miyazawa said on Friday it was natural for any rise in private-sector fund demand to affect the Bank of Japan's (BOJ) monetary policy, and that such a rise may boost yields on JGBs.

But BOJ Governor Masaru Hayami gave some support to JGBs by reiterating in comments to parliament his oft-stated stance that the central bank would stick to its zero interest-rate policy until deflationary fears disappear.

June JGB futures fell to an intraday low of 130.98 during the morning session, partly on talk of a report by a major US investment house saying it expected Moody's to downgrade Japan's domestic debt rating around late March to April and that the rating may fall to A1 over the next two years.

The bond market showed only a muted reaction to remarks by Economic Planning Minister Taichi Sakaiya, who said on Friday that consumption-related indicators in January showed a "considerably clear" economic recovery, adding that private-sector consumption had hit bottom in the last three months of 1999.

Amid a dearth of fresh incentives, the market will seek clues from the stock and currency markets, traders said.

September TIBOR-based euroyen futures were at 99.715, compared with Thursday's day-session settlement of 99.720.

The BOJ continued to reduce the projected net surplus in the money market on Friday, as expected.

The BOJ drained 1.0 trillion yen from the money market at its regular operation, leaving a projected net surplus of 5.3 trillion yen.

Key overnight call money was mainly traded at 0.02 percent, unchanged from on Thursday's weighted average.-Reuters